<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCULAR SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3851 94-2985696
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
475 ECCLES AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 583-1400
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GREGORY E. LICHTWARDT
CHIEF FINANCIAL OFFICER
OCULAR SCIENCES, INC.
475 ECCLES AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 583-1400
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
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LAIRD H. SIMONS III, ESQ. JAY K. HACHIGIAN, ESQ.
BARRY J. KRAMER, ESQ. BENNETT L. YEE, ESQ.
DAVID K. MICHAELS, ESQ. OLUFUNMILAYO B. AREWA, ESQ.
TRICIA L. EMMERMAN, ESQ. JONATHAN J. NOBLE, ESQ.
FENWICK & WEST LLP GUNDERSON DETTMER STOUGH
TWO PALO ALTO SQUARE VILLENEUVE FRANKLIN & HACHIGIAN, LLP
PALO ALTO, CALIFORNIA 94306 155 CONSTITUTION DRIVE
(415) 494-0600 MENLO PARK, CA 94025
(415) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per
share........................... $80,500,000 $24,393.93
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(1) Includes shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
amount of the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued May 19, 1997
Shares
OCULAR SCIENCES, INC.
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS. PRIOR
TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE
COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER
SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE FOR THE COMMON STOCK TO BE QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "OCLR."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 9 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts
and commissions for the purpose of covering overallotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel for the Underwriters. It is expected that delivery of the Shares will be
made on or about , 1997 at the offices of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in same day funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
Use of Proceeds....................................................................... 18
Dividend Policy....................................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Consolidated Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 30
Management............................................................................ 48
Certain Transactions.................................................................. 55
Principal and Selling Stockholders.................................................... 58
Description of Capital Stock.......................................................... 60
Shares Eligible for Future Sale....................................................... 62
Underwriters.......................................................................... 63
Legal Matters......................................................................... 64
Experts............................................................................... 64
Additional Information................................................................ 65
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent certified
public accounting firm and quarterly reports for the first three quarters of
each year containing unaudited consolidated financial information.
------------------------
The Company's logo, Biomedics(R), Clinasoft(R), Edge(R), Procon(R),
Mediflex(R), UltraFlex(R), Hydron(R), Hydron(R) ProActive(R), Versa-Scribe(R),
Echelon(R), 7/14(R) and Ultra T(R) are registered trademarks of the Company.
Hydron Biomedics 38(TM), Hydron Biomedics 55(TM), Clinasoft 55(TM), Mediflex
55(TM), UltraFlex 7/14 38(TM), UltraFlex 7/14 55(TM), Edge III(TM), Edge III
XT(TM), Edge III Thin(TM), and Edge III 55(TM) are trademarks of the Company.
This Prospectus also includes trademarks of companies other than the Company
which trademarks are the property of their respective owners.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted herein,
information in this Prospectus assumes (i) no exercise of the Underwriters'
overallotment option, (ii) the conversion of all outstanding shares of Series A
Preferred Stock of the Company ("Preferred Stock") into shares of Common Stock
of the Company, (iii) the reincorporation of the Company in Delaware, (iv) a
-for- split of the Company's Common Stock, and (v) the adoption of
certain employee benefit plans, all of which will occur upon or prior to the
closing of this offering. Unless the context otherwise requires, the term
"Company" when used herein shall mean Ocular Sciences, Inc., a Delaware
corporation, its California predecessor and its subsidiaries.
THE COMPANY
Ocular Sciences is a rapidly growing manufacturer and marketer of soft
contact lenses. The Company manufactures a broad line of soft contact lenses
designed for annual and disposable replacement regimens. The Company believes
that its lens designs provide wearers with a higher level of comfort and ease of
handling than those of its leading competitors. The Company's manufacturing
technologies permit consistent, cost-effective reproduction of these designs,
allowing the Company to offer its lenses at competitive prices. In addition, the
Company has implemented marketing strategies designed to assist eyecare
practitioners, both in independent practice and in retail chains, in retaining
their patients and monitoring patients' ocular health, thereby providing a
significant incentive for them to prescribe the Company's lenses. Furthermore,
the Company has continually focused on lowering its non-manufacturing costs, or
"cost-to-serve," enabling it to increase its price flexibility and
profitability. To minimize its cost-to-serve, the Company utilizes a
telemarketing sales force and targets its marketing efforts toward the eyecare
practitioner and not the consumer.
Industry analysts estimate that approximately 50% of the world's population
(130 million people in the United States alone) need some type of vision
correction. The United States currently represents the world's largest market
for contact lenses, with approximately 26 million people, or 20% of those
requiring vision correction, wearing contact lenses. The soft contact lens
market is characterized by increasing lens consumption. The number of soft
contact lenses sold in the United States has increased at a compound annual
growth rate of approximately 20% from 1985 to 1995, primarily as a result of the
introduction of soft contact lenses for disposable replacement regimens in 1988.
This increase in per unit sales has provided manufacturing economies of scale
that, together with heightened competition among eyecare practitioners, has led
to significant reductions in average retail prices for soft contact lenses.
Despite the decline in per unit prices, as wearers shift to more frequent
replacement regimens, their annual expenditures for lenses increase. The Company
believes that international markets will grow at faster rates than the United
States market and that this growth will be driven principally by increasing
penetration rates, which currently are significantly lower than those in the
United States, as the availability of low-priced soft contact lenses increases.
The Company believes that the eyecare profession suffers from a surplus of
practitioners and that the resulting competitive pressure has been exacerbated
by the increased prevalence of retail optical chains and mass merchandisers that
provide eyecare services. The typical eyecare practitioner in both private
practice and retail chain channels depends heavily on sales of products, such as
contact lenses and eyeglasses. The Company believes that the typical optometric
practice realizes approximately two-thirds of its revenue from sales of optical
products. Since the need for vision correction is chronic, repeat sales of
contact lenses can provide the practitioner with a recurring, predictable
revenue base. However, with the advent of disposable lens replacement regimens
and the availability of nationally advertised lens brands through virtually
every channel of distribution, including mail-order and pharmacies, the
prescribing practitioner risks losing recurring sales to alternate distribution
channels.
The Company believes that practitioners can increase their patient
retention and provide better ongoing patient care by providing
competitively-priced, high-quality products that are differentiated by brand
from those provided by competing channels. The Company has successfully
implemented a strategy based on addressing these needs of eyecare practitioners.
The Company markets its lenses solely to eyecare practitioners, both in private
practice and in retail optical chains, rather than to consumers. The Company
believes that
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focusing on the eyecare practitioner, who significantly influences the selection
of the brand of contact lenses worn by the patient, is critical to its ability
to market contact lenses successfully. The Company does not sell to mail-order,
pharmacies or other distribution channels that do not provide the regular eye
examinations necessary to maintain overall ocular health.
Over the last five years, the Company has established itself as the leader
in the spherical, non-specialty annual replacement segment of the United States
market with a market share of approximately 25% in 1996, based on unit sales.
Since its introduction of lenses for weekly disposable replacement regimens in
1993, the Company has steadily increased its share of this growing market,
reaching approximately 8% in 1996, based on unit sales. The Company's overall
unit sales have increased at a compound annual growth rate of approximately 81%
since 1992, primarily due to increased sales of its lenses for weekly disposable
replacement regimens. During the same period, while the average selling prices
of all of the Company's lenses combined declined 50%, the Company reduced its
per unit production costs by approximately 64% through manufacturing and
operating economies of scale as well as improvements in its manufacturing and
packaging processes. As a result, from 1992 to 1996, the Company's revenues and
operating income (excluding non-recurring charges in 1992) have increased at
compound annual growth rates of approximately 53% and 100%, respectively, while
its operating margins improved from 6.6% to 19.3%.
STRATEGY
The Company believes that by continuing to pursue its strategy focused on
addressing the needs of the eyecare practitioner, it will be well positioned to
increase sales and capture market share of the growing disposable lens market
segment. The principal elements of the Company's strategy include:
Focus Marketing Solely on Eyecare Practitioners. The Company's sales
and marketing efforts are directed at eyecare practitioners, because the
practitioner strongly influences the brand of lenses purchased by the
patient. The Company advertises and promotes its products solely to
practitioners rather than to consumers. In addition, the Company does not
sell its lenses to mail-order, pharmacies and other distribution channels
that do not provide the eyecare services necessary to confirm lens fit and
monitor ocular health. By bar-coding each disposable unit shipped, the
Company can identify any diversion of its lenses to non-eyecare
practitioner channels. The Company structures its branding and marketing
strategies so that the patient will be more likely to refill prescriptions
from the practitioner or retail chain from whom he or she received the
initial prescription. As a result, the Company believes that it assists
eyecare practitioners in retaining patient reorders and improves their
ability to monitor their patients' ongoing ocular health, thereby providing
a significant incentive for practitioners to prescribe the Company's
lenses.
Employ Unique Brand Segmentation by Channel. The high-volume use of
lenses for disposable replacement regimens has resulted in increased
mass-market advertising of competing products and intensified competition
across distribution channels. Unlike its larger competitors who promote
nationally advertised consumer brands across multiple distribution
channels, the Company advertises and promotes its lenses for disposable
replacement regimens under specific brand names for the private practice
channel and other brand names for the retail chain channel. The Company
also provides private label brands for its larger customers. Branding by
distribution channel preserves brand exclusivity and allows practitioners
to differentiate lenses sold by them from lenses sold through competing
channels, providing them with a greater ability to retain their patients'
prescription refill business. The Company believes that, as a result, its
channel-specific branding has become increasingly valuable to eyecare
practitioners. By promoting the repeat purchase of lenses from the
prescribing practitioner, the Company believes that its marketing
strategies increase patient satisfaction and thereby encourage long-term
loyalty to its products, while also motivating practitioners to prescribe
its lenses.
Produce Superior Performing Products. The Company believes that its
contact lenses are superior in performance to those of its major
competitors in terms of comfort and ease-of-use. The Company's advanced dry
cast molding process and sophisticated lens designs maximize wearers'
comfort and improve shape retention of lenses, making them easier for
wearers to handle. In addition, the Company's lenses are designed and
manufactured to provide fitting characteristics similar to competitors'
lenses. In
5
<PAGE> 7
general, this interchangeability enables the practitioner to switch a
patient to the Company's lenses without extensive refitting time. These
advantages enable the Company to market its lenses successfully to eyecare
practitioners so that they may improve the quality of eye care for both
existing, as well as new, contact lens wearers.
Emphasize Low-Cost Efficient Manufacturing. With the growth of the
high-volume disposable market segment, low-cost, scalable manufacturing has
become increasingly important. The Company's dry cast molding technology
allows it to efficiently manufacture high-quality lenses. With dry cast
molding, the Company has been able to reduce its manufacturing costs per
lens by approximately 64% over the last three years while increasing its
production volumes approximately 470%. The Company believes that the
increased unit volumes resulting from the growing disposable lens market
and continued investment in automation and capacity will enable it to
further decrease per unit production costs.
Minimize Cost-to-Serve. A substantial portion of the Company's costs
consists of the costs required to sell and market lenses and to take and
fill an order. The Company continually focuses on lowering these
non-manufacturing costs, or "cost-to-serve," allowing the Company to
increase pricing flexibility and profitability. The Company's primary means
of minimizing cost-to-serve are its use of telemarketing rather than a
traditional direct sales organization and its use of advertising targeted
to practitioners rather than to consumers. This strategy differentiates the
Company from its competitors, and the Company believes that the cost of its
average sales call is substantially lower than that of its competitors that
rely on field sales representatives, as the Company's inside sales
personnel can make more calls per day at a lower annual cost per
salesperson. In addition, unlike its leading competitors who market their
products to consumers through expensive mass-media campaigns, the Company
further controls its operating expenses by directing its marketing solely
to the eyecare practitioners that prescribe contact lenses. In addition,
the Company is investing in increased automation in its distribution
operations in order to maintain its low cost-to-serve.
Expand Internationally Through Strategic Relationships. The Company
believes that many international markets for soft contact lenses will grow
at faster rates than the United States market. However, many markets
outside the United States do not have the level of demand necessary for
local manufacturers to achieve the economies of scale required for
cost-effective lens production. The Company has begun to exploit
international growth opportunities by leveraging the scale of the U.S.
market to drive per unit manufacturing costs lower. Consistent with its
strategy of minimizing cost-to-serve, the Company's international growth
strategy is to establish strategic distribution and marketing relationships
with regional optical companies, such as the contact lens division of the
Carl Zeiss Company in Europe and Seiko Contact Lens, Inc. in Japan, to
capitalize on their existing market presence, customer relationships and
local infrastructure. The Company believes that, as a result, it can target
growing international markets effectively without significant investment in
direct operations.
BACKGROUND
The Company was founded in 1985 and, until 1992, was principally a
distributor of contact lenses. In September 1992, the Company began
manufacturing operations by acquiring Precision Lens Laboratories Ltd. ("PLL"),
a United Kingdom-based company and, until the acquisition, the primary supplier
of the Company's lenses. This acquisition provided the Company with the
facilities and technology to manufacture high-quality contact lenses. In October
1992, the Company acquired the contact lens business in North and South America
of Allergan, Inc., which had been operating under the name American Hydron
("American Hydron"). This acquisition provided the Company with a significantly
expanded customer base, an additional line of contact lens products and a
manufacturing facility in Puerto Rico.
------------------------
The Company was incorporated under the name O.S.I. Corporation in
California in 1985 and will reincorporate in Delaware prior to the consummation
of this offering. The Company's principal executive offices are located at 475
Eccles Avenue, South San Francisco, California 94080, and its telephone number
is (415) 583-1400.
6
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THE OFFERING
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Common Stock offered:
By the Company.............................. shares
By the Selling Stockholders................. shares
Total............................... shares(1)
Common Stock to be outstanding after the
offering.................................... shares(1)(2)
Use of proceeds............................... Repayment of $24.1 million of indebtedness
and certain accrued liabilities, expansion
and automation of manufacturing facilities
and general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........ OCLR
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $16,548 $38,533 $48,503 $68,087 $90,509 $17,176 $23,879
Gross profit......................................... 4,722 13,860 25,950 41,267 53,956 10,285 14,417
Total operating expenses............................. 5,732 15,377 17,492 26,015 36,521 8,063 11,173
Income (loss) from operations(3)..................... (1,010) (1,517) 8,458 15,252 17,435 2,222 3,244
Net income (loss) applicable to common
stockholders....................................... (2,894) (4,509) 4,955 8,708 10,094 1,084 1,802
Pro forma net income per share(4).................... 1.05 0.19
Shares used in computing pro forma net income per
share(4)........................................... 9,685 9,687
OTHER DATA:
Lenses sold for disposable replacement regimens as a
percentage of total lenses sold.................... 15.2% 19.1% 53.0% 73.4% 83.5% 82.4% 88.3%
EBITDA(5)............................................ $ 1,467 $ 6,853 $11,472 $19,077 $23,595 $ 3,599 $ 5,290
Depreciation and amortization........................ 400 1,775 2,137 2,578 4,904 975 1,674
Capital expenditures................................. 1,049 2,489 2,153 13,558 12,256 4,191 2,041
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------
AS
ACTUAL ADJUSTED(6)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash........................................... $ 3,378
Working capital...................................................................... 5,099
Total assets......................................................................... 69,738
Total debt........................................................................... 20,533
Stockholders' equity................................................................. 25,690
</TABLE>
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(1) Assumes the Underwriters' overallotment option is not exercised.
(2) Based on the number of shares outstanding as of March 31, 1997 after giving
effect to the conversion of all outstanding Preferred Stock into Common
Stock. Excludes 1,564,837 shares of Common Stock then issuable upon the
exercise of options outstanding under the Company's 1989 Stock Option Plan
(the "1989 Plan") and the Company's 1992 Officers and Directors Stock Option
Plan (the "1992 Plan"). See "Management -- Employee Benefit Plans" and Note
10 of Notes to Consolidated Financial Statements.
(3) Loss from operations for 1992 and 1993 includes non-recurring charges of
$2.1 million and $4.4 million, respectively, related to writedowns in the
carrying value of certain assets purchased in connection with the Company's
acquisition of American Hydron.
(4) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 2 of Notes to
Consolidated Financial Statements.
(5) "EBITDA" is defined herein as net income (loss) plus interest expense,
income taxes, depreciation and amortization expense, non-recurring charges
and certain recurring non-cash income and expense items consisting of (i)
changes in the allowance for doubtful accounts and the provision for excess
inventory and (ii) gain or loss on the sale of property and equipment. Such
recurring non-cash items aggregated $.3 million, $2.0 million, $1.2 million,
$.8 million, $1.3 million, $.3 million and $.5 million in the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 and the quarters ended March
31, 1996 and 1997, respectively. Management believes that EBITDA, as
presented, represents a useful measure of assessing the performance of the
Company's ongoing operating activities. The Company understands that, while
EBITDA is frequently used in the evaluation of companies, it is not
necessarily comparable to other similarly titled captions of other companies
as a result of potential inconsistencies in the method of calculation.
EBITDA is not intended as an alternative to net income as an indicator of
the Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
(6) Adjusted to reflect the sale by the Company of shares of Common
Stock offered hereby and the anticipated application of the estimated net
proceeds therefrom at an assumed initial public offering price of $ per
share, and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company. See "Use of
Proceeds" and "Capitalization."
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed below, in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
Intense Competition. The market for soft contact lenses is intensely
competitive and is characterized by decreasing prices for many products. The
Company's products compete with products offered by a number of larger companies
including the Vistakon division of Johnson & Johnson ("Johnson & Johnson"),
Ciba-Geigy Corporation ("Ciba-Geigy"), Bausch & Lomb, Inc. ("Bausch & Lomb") and
Wesley Jessen VisionCare, Inc. ("Wesley Jessen"). Most of the Company's
competitors have substantially greater financial, manufacturing, marketing and
technical resources, greater market penetration and larger manufacturing volumes
than the Company. Among other things, these advantages may afford the Company's
competitors greater flexibility to manufacture large volumes of lenses and
reduce product prices. The Company believes that certain of its competitors are
expanding, or are planning to expand, their manufacturing capacity, and are
implementing new, more automated manufacturing processes, in order to support
anticipated increases in volume. As many of the costs involved in producing
contact lenses are relatively fixed, if a manufacturer can increase its volume,
it can generally reduce its per unit costs and thereby increase its flexibility
to reduce prices. In addition, competitors may reduce prices to achieve the
sales volumes necessary to utilize their increased capacity. Price reductions by
competitors could make the Company's products less competitive, and there can be
no assurance that the Company would be able to reduce its prices in response.
The Company's ability to respond to competitive pressures by decreasing its
prices without adversely affecting its gross margins and operating results will
depend on its ability to decrease its costs per lens. Any significant decrease
in the Company's costs per lens will depend, in part, on the Company's ability
to increase its sales volume and production capacity. There can be no assurance
that the Company will be able to continue to increase its sales volume or reduce
its per unit production costs. In response to competition, the Company may also
increase cooperative merchandising allowances or otherwise increase spending,
which may adversely affect its business, financial condition and results of
operations. The failure of the Company to respond to competitive pressures, and
particularly price competition, in a timely manner would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Manufacturing Capacity Constraints; Risks Associated with Expansion and
Automation of Manufacturing Operations."
The market for contact lenses is shifting from lenses marketed for annual
replacement regimens, where the Company has significant experience and a leading
market position, to lenses for disposable replacement regimens, where the
Company is less experienced. The disposable lens segment is particularly
competitive and price-sensitive and is currently dominated by the Acuvue product
produced by Johnson & Johnson. The Company believes that Johnson & Johnson's per
unit production costs are currently lower than those of the Company. A
significant price reduction by Johnson & Johnson for this product could prevent
the Company from gaining wider market acceptance in the disposable lens segment
and, as a result, could materially adversely affect the Company's business,
financial condition and results of operations. In addition, the lenses currently
offered in the United States by the Company in the disposable lens segment are
marketed for weekly and monthly replacement regimens. Certain of the Company's
competitors have introduced lenses for daily replacement at lower prices than
their current weekly and bi-weekly disposable lenses. The Company's ability to
enter and to compete effectively in the market for daily disposable lenses will
depend in large part upon the Company's ability to expand its production
capacity and reduce its per unit production costs. See "-- Dependence on Single
Product Line; Need to Increase Sales of Disposable Lenses."
The Company also encounters competition from manufacturers of eyeglasses
and from alternative technologies, such as surgical refractive procedures
(including new refractive laser procedures such as PRK, or photorefractive
keratectomy, and LASIK, or laser in situ keratomileusis). If surgical refractive
procedures become increasingly accepted as an effective and safe technique for
permanent vision correction, they could substantially reduce the demand for
contact lenses by enabling patients to avoid the ongoing cost and
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inconvenience of contact lenses. Accordingly, there can be no assurance that
these procedures, or other alternative technologies that may be developed in the
future, will not cause a substantial decline in the number of contact lens
wearers and thus have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
Manufacturing Capacity Constraints; Risks Associated with Expansion and
Automation of Manufacturing Operations. The Company's success will depend upon
its ability to increase its production volume on a timely basis while
maintaining product quality and lowering per unit production costs.
Manufacturers often encounter difficulties in increasing production volumes,
including problems involving delays, quality control and shortages of qualified
personnel. Any significant increase in production volume will require that the
Company increase its manufacturing capacity.
The Company intends to add new, highly automated production lines at its
facilities in the United Kingdom and Puerto Rico to increase its manufacturing
capacity and reduce its per unit manufacturing costs. However, there can be no
assurance that the Company will be able to implement these automated lines on a
timely basis or that the new automated lines will operate as efficiently as
expected. The Company could encounter significant difficulties in implementing
these automated lines. For example, suppliers could miss their equipment
delivery schedules, the efficiency of the new production lines could improve
less rapidly than expected, if at all, or the equipment or processes could
require redesigning after installation. In addition, these new production lines
will involve processes and equipment with which the Company and its personnel
are not experienced. Difficulties experienced by the Company in automating its
manufacturing facilities could impair the Company's ability to reduce its per
unit production costs and to compete in the disposable lens market, and
accordingly, could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the installation of
these highly automated production lines in Puerto Rico could increase the
Company's tax rate if it results in a significant reduction in the Company's
labor costs in Puerto Rico in relation to its Puerto Rican earnings.
The Company is currently experiencing space constraints at its Puerto Rican
facility, which is now operating at or near capacity. As a result, the Company
is in the process of negotiating a lease for a new, larger facility to be
constructed to the Company's specifications. There can be no assurance that the
Company will be able to secure this space in a timely manner, if at all. If
space is secured, the facility must be constructed, and the Company will be
required to develop and install production lines that comply with applicable
laws including the Federal Food, Drug and Cosmetic Act (the "FDC Act") and
requirements of the U.S. Food and Drug Administration (the "FDA") pertaining to
current good manufacturing practices ("GMP"). Before any new facility for
manufacturing contact lenses can begin production, it must be inspected by the
FDA for compliance with GMP, and the inspection and approval process could
significantly delay the Company's ability to begin production in this new
facility. The development and construction of a new manufacturing facility is
subject to significant risks and uncertainties, including cost estimation errors
and overruns, construction delays, weather problems, equipment delays or
shortages, production start-up problems and other factors, many of which are
beyond the Company's control. Given the long lead times associated with
constructing a new facility, the Company will incur substantial cash
expenditures before production of commercial volumes of contact lenses is
achieved at its planned new facility in Puerto Rico. Furthermore, the Company's
development of a new facility will result in new fixed and operating expenses.
If revenue levels do not increase sufficiently to offset these new expenses, the
Company's operating results could be materially adversely impacted. There can be
no assurance that the Company will not encounter unforeseen difficulties, costs
or delays in constructing and equipping the new manufacturing facility in Puerto
Rico, in relocating operations to the new facility or in commencing production
at the new facility. Any such difficulties or delays would limit the Company's
ability to increase production volume and lower per unit costs (and consequently
prices), would limit the Company's ability to compete in the disposable lens
market, and accordingly, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has in the past experienced, and may in the future experience,
delays in its ability to fill customer orders for certain products on a timely
basis because of limits on its production capacity. Significant delays in
filling orders over an extended period would damage customer relations, which
would materially adversely affect the Company's business, financial condition
and results of operations. The production
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schedules for each of the Company's products are based on forecasts of customer
demand for such products, and the Company has only limited ability to modify
short-term production schedules. If the Company were to underestimate materially
the demand for any of its products, it would not be able, on a short-term basis,
to satisfy fully such demand. The ability of the Company to estimate demand may
be less precise during periods of rapid growth or with respect to new products.
The failure of the Company to accurately forecast its requirements accurately
could lead to inventory shortages or surpluses that could adversely affect
results of operations and lead to fluctuations in quarterly operating results.
See "Business -- Manufacturing."
Risk of Trade Practice Litigation; Changes in Trade Practices. The contact
lens industry has been the subject of a number of class action and government
lawsuits and government investigations in recent years. In December 1996, over
twenty states sued three of the Company's largest competitors, as well as
certain eyecare practitioners and trade organizations. The suit alleges, among
other things, a conspiracy among such persons to violate antitrust laws by
refusing to sell contact lenses to mail-order and other non-practitioner contact
lens providers, so as to reduce competition in the contact lens industry. A
similar lawsuit was filed by the State of Florida in 1994 and may go to trial in
1997, and several similar class action lawsuits were also filed in 1994. It has
recently been announced that one of the defendants in such suits has agreed to
settle the lawsuits as to itself by agreeing to sell contact lenses to
mail-order and other alternative distribution channels, and to make substantial
cash and product rebates available to consumers. In an unrelated matter, one of
the Company's largest competitors was sued in a class action lawsuit brought in
the Federal District Court in the Northern District of Alabama in 1994. This
suit alleged that the defendant engaged in fraudulent and deceptive practices in
the marketing and sale of contact lenses by selling identical contact lenses,
under different brand names and for different replacement regimens, at
significantly different prices. The defendant subsequently modified certain of
its marketing practices and ultimately settled the lawsuit in August 1996 by
making substantial cash and product payments available to consumers. Although
the Company has not been named in any of the foregoing lawsuits, the Company
from time to time receives claims or threats similar to those brought against
its competitors. There can be no assurance that the Company will not face
similar actions relating to its marketing and pricing practices or other claims
or lawsuits in the future. The defense of any such lawsuit could result in
substantial expense to the Company and significant diversion of attention and
effort by the Company's management personnel. There can be no assurance that any
such lawsuit would be settled or decided in a manner favorable to the Company,
and a settlement or adverse decision in any such lawsuit could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition to the foregoing lawsuits, there is substantial federal and
state governmental regulation related to the prescribing of contact lenses.
These regulations relate to who is permitted to prescribe and fit contact
lenses, the prescriber's obligation to provide prescriptions to its patients,
the length of time a prescription is valid, the ability or obligation of
prescribers to prescribe lenses by brand rather than by generic equivalent or
specification, and other matters. Although these regulations primarily affect
contact lens prescribers, and not manufacturers or distributors of lenses such
as the Company, changes in these regulations, or their interpretation or
enforcement, could adversely affect the effectiveness of the Company's marketing
strategy to eyecare practitioners, most notably the effectiveness of the
Company's channel-specific and private label branding strategies. See
"Business -- Strategy." Additionally, given the Company's strategic emphasis on
focusing its marketing efforts on eyecare practitioners, the Company may be more
vulnerable than its competitors to changes in current trade practices. Adverse
regulatory or other decisions affecting eyecare practitioners, or material
changes in the selling and prescribing practices for contact lenses, could have
a material adverse affect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
Dependence on Single Product Line; Need to Increase Sales of Disposable
Lenses. All of the Company's revenues to date have been attributable to the
Company's sale of soft contact lenses. Should the demand for the Company's soft
contact lenses decline due to increased competitive pressures, changes in
consumer preferences, the inability of the Company to respond to reduced prices
by its competitors, the advent of alternative technologies for corrected vision
or other factors, the Company's business, financial condition and results of
operations would be materially adversely affected.
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A substantial portion of the Company's revenues to date (and, through 1994,
a majority of the Company's revenues) have been attributable to the Company's
sales of soft contact lenses for annual replacement regimens. The U.S. market
for contact lenses for annual replacement regimens has been marked by reduced
overall demand in recent years. The Company expects that this segment of the
market for contact lenses for annual replacement regimens will continue to
contract in its major geographic markets as the market for contact lenses for
disposable replacement regimens continues to expand. The Company, a relatively
recent entrant in the market for lenses for disposable replacement regimens,
introduced its first product marketed for weekly replacement in September 1993.
The Company's success depends on both continued growth of this market and
increased penetration of this market by the Company's products. Increased market
penetration by the Company will require that wearers of competing products
switch to the Company's products. The Company anticipates that prices for its
products targeted for disposable replacement regimens will decline in the
future. There can be no assurance that the Company's contact lenses for
disposable replacement regimens will achieve widespread consumer acceptance, or
that sales or net income from the sale of the Company's lenses for disposable
replacement regimens will be sufficient to offset the decline in the Company's
sales or net income from its contact lenses for annual replacement regimens,
which have higher prices and gross margins. Any such failure to achieve market
acceptance or to capture a significant share of the disposable contact lens
market segment would impair the Company's ability to reduce its per unit
production costs and would have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Intense
Competition," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Products" and "Business -- Competition."
Risk of New Products and Technological Change. The Company does not
allocate substantial resources to new product development and has historically
leveraged or licensed the technology developments of others. The Company
believes that many of its competitors have invested, and will continue to
invest, substantial amounts in developing new products and technologies, and
there can be no assurance that the Company's competitors do not have or will not
develop new products and technologies that could render the Company's products
less competitive. For example, Johnson & Johnson has recently introduced
disposable lenses with an ultraviolet light inhibitor, which could increase the
appeal of its products. The Company is seeking to develop a similar feature, but
no assurance can be given as to when or whether the Company will be able to
offer this feature. In addition, it has been reported that Ciba-Geigy and others
are seeking to develop extended-wear lenses based on new polymers that may
significantly increase the period over which the lens may be left in the eye.
There can be no assurance that the Company will be able to sufficiently leverage
or license technology of third parties in order to remain competitive. Any
failure by the Company to stay current with its competitors with regard to new
product offerings and technological changes and to offer products that provide
performance that is at least comparable to competing products would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Dependence on Single Product Line; Need to
Increase Sales of Disposable Lenses" and "Business -- Research and Development."
Fluctuations in Operating Results; Seasonality. The Company's quarterly
operating results have varied in the past and are likely in the future to vary
significantly based upon a number of factors. In addition to seasonal factors,
the Company's quarterly results can be affected significantly by pricing changes
by the Company or its competitors, the Company's ability to increase
manufacturing capacity efficiently and to reduce per unit manufacturing costs,
the time and costs involved in expanding existing distribution channels and
establishing new distribution channels, discretionary marketing and promotional
expenditures such as cooperative merchandising allowances paid to the Company's
customers, timing of the introduction of new products by the Company or its
competitors, inventory shortages, timing of regulatory approvals and other
factors. Products are generally shipped as orders are received, and,
consequently, quarterly sales and operating results depend primarily on the
volume and timing of orders received during the quarter, which are difficult to
forecast. A significant portion of the Company's operating expenses are
relatively fixed, and planned expenditures are based on sales forecasts. If
sales levels fall below expectations, operating results are likely to be
materially adversely affected. In particular, net income may be
disproportionately affected because only a small portion of the Company's
expenses varies with revenue in the short term. In response to competition, the
Company may reduce prices, increase cooperative merchandising allowances or
otherwise increase marketing expenditures, and such responses may adversely
affect the Company's business, financial condition and results
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of operations. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Further, it is likely that in some future quarter the Company's net sales or
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
The Company's historical sales have exhibited significant seasonality, with
the third and fourth quarters having the highest net sales in any year and the
first quarter of the following year having lower net sales than the preceding
two quarters. The Company believes that the seasonality of its quarterly results
is primarily due to consumer buying habits. The Company believes that the
historical increases in sales of its products in the third and fourth quarters
have been due to late summer (back-to-school) purchases by consumers and to
higher traffic in the fourth quarter through malls and mass merchandisers with
optical outlets. The Company further believes that the historical decline in the
first quarter has been due to reduced consumer buying in the post-holiday
season. In addition, due to the relatively high proportion of the Company's
fixed costs to its total costs, the Company's level of profitability increases
significantly with increasing sales volumes, resulting in disproportionately
better results in the second half of each year. There can be no assurance that
these patterns will not continue in future years although the pattern may be
somewhat less pronounced if the Company continues to increase the proportion of
sales represented by lenses for disposable replacement regimens, which are
replaced more frequently than lenses for annual replacement regimens. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Relating to International Operations; Need to Increase Sales in
International Markets. In 1995, 1996 and the first quarter of 1997, the
Company's international sales represented 17.6%, 18.1% and 20.7%, respectively,
of the Company's net sales. In addition, a substantial portion of the Company's
products are manufactured in the United Kingdom. As a result, the Company's
business is subject to the risks generally associated with doing business
abroad, such as foreign consumer preferences, disruptions or delays in
shipments, changes in currency exchange rates, longer accounts receivable
payment cycles and greater difficulties in collecting accounts receivable,
foreign tax laws or tariffs, political unrest and changing economic conditions
in countries in which the Company's products are sold or manufacturing
facilities are located. These factors, among others, could adversely affect the
Company's ability to sell its products in international markets, as well as its
ability to manufacture its products. If any such factors were to render the
conduct of business in a particular country undesirable or impractical, there
could be a material adverse effect on the Company's business, financial
condition and results of operations. The Company and its representatives, agents
and distributors are also subject to the laws and regulations of the foreign
jurisdictions in which they operate or in which the Company's products are sold.
The regulation of medical devices in a number of jurisdictions, particularly in
the European Union, continues to develop, and there can be no assurance that new
laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations.
A substantial portion of the Company's sales and expenditures are collected
or paid in currencies other than the U.S. dollar. Therefore, the Company's
operating results are impacted by fluctuations in foreign currency exchange
rates. While the impact of exchange rate fluctuations on the Company's results
of operations have not been material in the past three years, there can be no
assurance that in the future exchange rate movements will not have a material
adverse effect on the Company's sales, gross profit, operating expenses or
foreign currency exchange gains and losses. In the three months ended March 31,
1997, the Company had an exchange loss of $214,000, primarily relating to
changes in exchange rates between the U.S. dollar and the U.K. pound sterling.
An important aspect of the Company's strategy is the expansion of the
Company's international sales of its products, and the Company's continued
growth is dependent on such expansion. This expansion will involve operations in
markets with which the Company is not experienced and there can be no assurance
that the Company will be successful in capturing a significant portion of the
international market for contact lenses. In addition, the Company will not be
able to market and sell its products in certain international markets, such as
Japan, until it obtains regulatory approval. The failure of the Company to
increase its international sales
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substantially could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has recently entered into agreements with distributors in a
number of international markets, including Europe and Japan. The Company will
depend on such distributors to market and sell its contact lenses in these
markets, and, in some cases, to obtain necessary regulatory approvals. There can
be no assurance that these distributor relationships will be successful, that
other existing distributor relationships will be maintained or that any
disruptions in such relationships will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Sales and Marketing."
Uncertain Ability to Manage Growth; Risks Associated with Implementation of
New Management Information Systems. The Company has experienced rapid growth in
recent years. Continued rapid growth may place a significant strain on
management, operational infrastructure, working capital and financial and
management control systems. Growth in the Company's business has required, and
is expected to continue to require, significant personnel management and other
infrastructure resources. The Company's ability to manage any future growth
effectively will require it to attract, train, motivate and manage new employees
successfully, to integrate new employees into its overall operations and to
continue to improve its operational, financial and management information
systems. The Company is in the process of replacing its management information
systems. The new systems will significantly affect many aspects of the Company's
business, including its manufacturing, sales and marketing and accounting
functions, and the successful implementation of these systems will be important
to facilitate future growth. Implementation of the new management information
systems could cause significant disruption in operations. If the Company is not
successful in implementing its new systems or if the Company experiences
difficulties in such implementation, the Company could experience problems with
the delivery of its products or an adverse impact on its ability to access
timely and accurate financial and operating information. See
"Business -- Employees."
Risks Associated with Interruption of Manufacturing Operations. The Company
manufactures substantially all of the products it sells. As a result, any
prolonged disruption in the operations of the Company's manufacturing
facilities, whether due to technical or labor difficulties, destruction of or
damage to any facility or other reasons, could have a material adverse effect on
the Company's business, financial condition and results of operations. In this
regard, one of the Company's principal two manufacturing facilities is located
in Puerto Rico and is thus exposed to the risks of damage from hurricanes. If
this facility were to be out of production for an extended period, the Company's
business, financial condition and results of operation would be materially
adversely affected. See "Business -- Manufacturing."
Dependence on Trademarks, Patent Licenses and Trade Secrets; Risk of
Intellectual Property Infringement. The Company has numerous trademark
registrations in the United States, Europe and other foreign countries. The
Company believes that its trademarks have significant value and are instrumental
to its ability to create and sustain demand for its products and to implement
its channel-based branding strategy. The Company believes that there are no
currently pending challenges to the use or registration of any of the Company's
registered trademarks. There can be no assurance, however, that the Company's
trademarks do not or will not violate the proprietary rights of others, that
they would be upheld if challenged or that the Company would, in such an event,
not be prevented from using its trademarks, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
From time to time, the Company discovers products in the marketplace that
infringe on trademark rights held by the Company. If the Company is unsuccessful
in challenging a third party's trademark infringement, continued sales of such
product could adversely affect the Company's marketing strategy, which relies
heavily on the Company's proprietary trademarks, and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company currently relies on a licensed patent for a significant element
of the dry cast molding technology used in the production of its products. This
license is non-exclusive, and therefore this patented process may be licensed to
the Company's competitors. Also, the patent owners have a significant interest
in a United Kingdom company that competes with the Company in certain markets.
See "Certain Transactions -- OSL Acquisition and Related Litigation." The
Company also relies on non-exclusive licenses to certain design
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patents for its toric and bifocal contact lenses, and these licenses limit the
Company's sales of products using the licensed technology to the Americas. The
Company owns no patents and has no patent applications pending. Certain of the
Company's competitors have significant patent portfolios. To the extent the
Company desires or is required to obtain additional licenses to patents or
proprietary rights of others, there can be no assurance that any such licenses
will be available on terms acceptable to the Company, if at all. The inability
of the Company to obtain any of these licenses could result in an inability to
make or sell products or reductions or delays in the introduction of new
products to meet consumer preferences. Any such prohibitions, reductions or
delays in the introduction of such products could have a material adverse effect
on the Company's business, financial condition and results of operations.
In addition to trademarks and patent licenses, the Company owns certain
trade secrets, copyrights, know-how and other intellectual property. The Company
seeks to protect these assets, in part, by entering into confidentiality
agreements with certain of its business partners, consultants and vendors. There
can be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any such breach or that the Company's trade
secrets and other intellectual property will not otherwise become known by
others and thereby become unprotected. Furthermore, no assurance can be given
that competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
proprietary technology or that the Company can meaningfully protect its rights
in unpatented proprietary technology.
The defense and prosecution of intellectual property suits and related
administrative proceedings are both costly and time-consuming. Litigation may be
necessary to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or administrative proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. The prosecution and defense of intellectual
property rights, as with any lawsuit, is inherently uncertain and carries no
guarantee of success. The protection of intellectual property in certain foreign
countries is particularly uncertain. An adverse determination in litigation or
administrative proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties, require the Company to
seek licenses from third parties, prevent the Company from selling its products
or require the Company to modify its products. Although patent and intellectual
property disputes regarding medical devices are often settled through licensing
and similar arrangements, costs associated with such arrangements may be
substantial and could include ongoing royalties. Furthermore, there can be no
assurance that any necessary licenses would be available to the Company on
satisfactory terms, if at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, and such events would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Trademarks, Trade Secrets and Patent
Licenses."
Risks of Regulatory Action. The Company's products and manufacturing
facilities are subject to stringent regulation by the FDA and by various
governmental agencies for the states and localities in which the Company's
products are manufactured and/or sold, as well as by governmental agencies in
certain foreign countries in which the Company's products are manufactured
and/or sold. Pursuant to the FDC Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, distribution, sale, marketing, advertising and promotion of medical
devices such as contact lenses. The process of obtaining FDA and other required
regulatory clearances or approvals is lengthy, expensive and uncertain. Failure
to comply with applicable regulatory requirements can result in, among other
things, fines, suspensions or withdrawals of regulatory clearances or approvals,
product recalls, operating restrictions, including total or partial suspension
of production, distribution, sales and marketing, product seizures and criminal
prosecution of the Company, its officers and its employees. In addition,
governmental regulations may be established that could prevent or delay
regulatory clearances or approval of the Company's products. Delays in receiving
necessary United States or foreign regulatory clearances or approvals, failure
to receive clearances or approvals, or the loss of previously received
clearances or approvals could have a material adverse effect on the Company's
business, financial condition and results of operations.
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In general, the FDC Act requires that a new medical device be cleared by
the FDA prior to introducing such product to the United States market through
the submission of a Section 510(k) Pre-Market Notification (a "510(k)
notification") or approved by the FDA prior to introducing such product to the
market through the submission of a Pre-Market Approval Application (a "PMA").
The process of obtaining clearance of a 510(k) notification typically takes five
to twelve months without clinical data, or twelve to eighteen months or more if
clinical data are required to be included in the notification, but it may take
longer, and 510(k) clearance may never be obtained. Approval through the PMA
process, which likewise may never be obtained, generally takes at least eighteen
to twenty-four months and can take substantially longer, is more expensive and
requires the submission of extensive preclinical and clinical data and
manufacturing information, among other things. The soft contact lenses currently
marketed by the Company have received FDA clearance through the 510(k) process
or approval through the PMA process. In addition, the Company has made
modifications to its products which the Company believes do not require the
submission of new 510(k) notifications or PMA supplements. There can be no
assurance, however, that the FDA will agree with any of the Company's
determinations not to submit new 510(k) notifications or PMA supplements for
these changes, that the FDA will not require the Company to cease sales and
distribution, and seek clearances of 510(k) notifications and approvals of PMA
supplements for the changes, or that such clearances and approvals, if required,
will be obtained in a timely manner or at all. In addition, there can be no
assurance that any future products developed by the Company or any modifications
to current products will not require additional clearances or approvals from the
FDA, or that such approvals, if necessary, will be obtained in a timely manner
or at all.
The Company's manufacturing facilities are subject to periodic GMP and
other inspections by the FDA. In March 1996, the Company received a warning
letter from the FDA regarding certain procedures used in manufacturing products
at its facilities in Puerto Rico. The Company has taken steps to address the
FDA's concerns and, after reinspecting the facilities, the FDA notified the
Company that its concerns were satisfactorily addressed. There can be no
assurance that the Company will be found in compliance with GMP requirements in
future inspections by regulatory authorities, and noncompliance with GMP
requirements could result in the cessation or reduction of the Company's
production volume, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements in some
countries to complex clearance and production controls in others. Some countries
have historically permitted human studies earlier in the product development
cycle than regulations in the United States permit. Other countries, such as
Japan, have requirements similar to those of the United States. This disparity
in the regulation of medical devices may result in more rapid product clearance
in certain countries than in the United States, while approvals in countries
such as Japan may require longer periods than in the United States. These
differences may also affect the efficiency and timeliness of international
market introduction of the Company's products, and there can be no assurance
that the Company will be able to obtain regulatory approvals or clearances for
its products in foreign countries in a timely manner or at all. See
"Business -- Government Regulation."
Product Liability; Insurance. The Company has in the past been, and
continues to be, subject to product liability claims. Because contact lenses are
medical devices, the Company faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in personal
injury. The Company also faces the possibility that defects in the design or
manufacture of its products might necessitate a product recall. From time to
time, the Company has received, and may in the future receive, complaints of
significant patient discomfort, including corneal complications, while using the
Company's contact lenses. In certain cases, the reasons for the problems have
never been established. In addition, on two occasions, in 1995 and 1997, the
Company has recalled certain of its products due to labeling errors. Although
the Company has not experienced material losses to date due to product liability
claims or product recalls, there can be no assurance that the Company will not
experience such losses in the future, that insurance coverage will be adequate
to cover such losses, or that insurance coverage will be available on acceptable
terms or at all. A product liability or other judgment against the Company in
excess of the Company's insurance coverage or a product recall
15
<PAGE> 17
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business -- Product Liability and
Insurance."
Environmental Regulations. Federal, state and local regulations impose
various controls on the storage, handling, discharge and disposal of certain
substances used in the Company's manufacturing process and on the Company's
facilities. The Company believes that its activities conform to present
governmental regulations applicable to its operations and its current
facilities, including those related to environmental, land use, public utility
utilization and fire code matters. There can be no assurance that such
governmental regulations will not in the future impose the need for additional
capital equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. The adoption of such measures or any
failure by the Company to comply with applicable environmental and land use
regulations or to restrict the discharge of hazardous substances could subject
the Company to future liability or could cause its manufacturing operations to
be curtailed or suspended.
Dependence on Key Personnel. The Company is dependent upon a limited number
of key management and technical personnel. The Company's future success will
depend in part upon its ability to attract and retain highly qualified
personnel. The Company competes for such personnel with other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in retaining or hiring
qualified personnel. The loss of any of the Company's senior management or other
key research, clinical, regulatory, or sales and marketing personnel,
particularly if lost to competitors, could have a material adverse effect on the
Company's business, financial condition and results of operations. In
particular, the loss of John D. Fruth, the Company's founder and President,
could have a material adverse effect on the Company. See "Business -- Employees"
and "Management."
Control by Existing Stockholders. After the offering contemplated hereby,
the directors, officers and principal stockholders of the Company will, in the
aggregate, beneficially own approximately % of the Company's outstanding
Common Stock (approximately % assuming exercise of the Underwriters' over-
allotment option). As a result, these stockholders, acting together, will
possess voting control of the Company, giving them the ability, among other
things, to elect the Company's Board of Directors and approve significant
corporate transactions. Such control could have the effect of delaying,
deferring or preventing a change in control of the Company. See "Principal and
Selling Stockholders."
Certain Anti-Takeover Provisions. Upon completion of this offering, the
Company's Board of Directors will have the authority to issue up to 4,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing flexibility in connection with
possible financings or acquisitions or other corporate purposes, could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. The Company has no current plans to
issue shares of Preferred Stock. The Company's Bylaws and indemnity agreements
provide that the Company will indemnify officers and directors against losses
they may incur in legal proceedings resulting from their service to the Company.
Further, the Company's charter documents contain a provision eliminating the
ability of the Company's stockholders to take action by written consent
effective upon the closing of this offering. This provision is designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and to render the use of stockholder written consent unavailable as a tactic in
a proxy fight. However, such provision could have the effect of discouraging
others from making tender offers for the Company's shares, thereby inhibiting
increases in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provision also may have the effect of
preventing changes in the management of the Company. In addition, Section 203 of
the Delaware General Corporation Law, to which the Company is subject, restricts
certain business combinations with any "interested stockholder" as defined by
such statute. The statute may delay, defer or prevent a change in control of the
Company. See "Description of Capital Stock."
16
<PAGE> 18
Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market following this
offering could adversely affect the market price for the Company's Common Stock.
The number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act") and by lock-up agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated. However, Morgan Stanley & Co.
Incorporated, may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements. As a
result of these restrictions, based on shares outstanding and options granted as
of March 31, 1997, the following shares of Common Stock will be eligible for
future sale: on the date of this Prospectus, shares other than the
shares offered hereby will be eligible for sale; an additional
shares will be eligible for sale 180 days after the date of this
Prospectus; and an additional shares will be eligible for sale upon
expiration of their respective one-year holding period. In addition, the Company
intends to register on or promptly after the effective date of this offering a
total of shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's 1989 Plan and 1992 Plan and
and and shares of Common Stock reserved for issuance under its
1997 Employee Purchase Plan, 1997 Equity Incentive Plan and 1997 Directors Stock
Option Plan, respectively. Further, upon expiration of the lock-up agreements
referred to above, holders of approximately shares of Common Stock
will be entitled to certain registration rights with respect to such shares. If
such holders, by exercising their registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have a
material adverse effect on the market price for the Company's Common Stock. See
"Description of Capital Stock -- Registration Rights" and "Shares Eligible for
Future Sale."
No Prior Trading Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop or, if
one does develop, that it will be maintained. The initial public offering price,
which will be established by negotiations between the Company, the Selling
Stockholders and the representatives of the Underwriters based upon a number of
factors, may not be indicative of prices that will prevail in the trading
market. See "Underwriters" for a discussion of the factors to be considered in
determining the initial public offering price. The market price of the shares of
Common Stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results or those of its competitors, competitive factors, new products offered
by the Company or its competitors, developments with respect to patents or
proprietary rights, conditions and trends in its industry and other related
industries, regulatory actions, adoption of new accounting standards, changes in
financial estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of early stage companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Such litigation, if brought against the
Company, could result in substantial costs and a diversion of management's
attention and resources. See "Underwriters."
Immediate and Substantial Dilution. Investors participating in this
offering will incur immediate, substantial dilution in the amount of
$ . To the extent that options to purchase the Company's Common Stock
are exercised, there will be further dilution. See "Dilution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately $
million (approximately $ million if the Underwriters' overallotment option
is exercised in full), at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Stockholders. See "Principal and Selling Stockholders."
The Company expects to use approximately $14.5 million of the net proceeds
of this offering to repay all of the debt outstanding under the Company's Credit
Agreement with Comerica Bank-California (the "Comerica Credit Agreement") and
$2.9 million to repay debt owed to John D. Fruth, the Company's President. As of
March 31, 1997, the effective interest rate on the indebtedness under the
Comerica Credit Agreement was approximately 8.4% per annum. The amount
outstanding under the Comerica Credit Agreement was incurred on October 30, 1996
and utilized to repay previously outstanding indebtedness. The Company is also
obligated, upon the closing of this offering, to pay the remaining $6.7 million
owed pursuant to the settlement agreement in certain recent litigations in the
United Kingdom and California. See "Certain Transactions -- OSL Acquisition and
Related Litigation." The Company intends to use the remaining net proceeds of
$ million for expansion and further automation of its manufacturing
facilities and for other general corporate purposes, including working capital.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest-bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, and the payment of cash dividends on its Common Stock is prohibited under
the Comerica Credit Agreement. Since January 31, 1993, the Company has paid
cumulative dividends quarterly on its Preferred Stock at the rate of $0.6975 per
share per annum. Upon the closing of this offering, all outstanding shares of
Preferred Stock will be converted into shares of Common Stock. The Company
currently expects to retain all future earnings for use in the operation and
expansion of its business and does not anticipate paying any cash dividends on
its capital stock in the foreseeable future.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of March 31, 1997, the capitalization of
the Company and the capitalization of the Company as adjusted to give effect to
(i) the conversion of all outstanding shares of Preferred Stock into shares of
Common Stock upon the closing of this offering, (ii) the sale of the
shares of Common Stock offered by the Company hereby, at an assumed initial
public offering price of $ and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company, and (iii) the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Borrowings under the Comerica Credit Agreement(1).................... $14,487 $ --
Borrowings from John D. Fruth(2)..................................... 2,895 --
Note payable(1)...................................................... 1,933 1,933
Capital lease obligations and other(1)............................... 1,218 1,218
------- -------
Total long-term debt, including current portion................... 20,533 3,151
------- -------
Stockholders' equity:
Preferred stock, $0.001 par value; 4,000,000 shares authorized;
118,168 shares issued and outstanding, actual(3); none issued or
outstanding, as adjusted.......................................... 1 --
Common stock, $0.001 par value; 40,000,000 shares authorized;
8,279,915 shares issued and outstanding, actual; shares
issued and outstanding, as adjusted(4)............................ 8
Additional paid-in capital........................................... 8,405
Retained earnings.................................................... 17,382 17,382
Cumulative translation adjustment.................................... (106) (106)
------- -------
Total stockholders' equity........................................ 25,690
------- -------
Total capitalization............................................ $46,223 $
======= =======
</TABLE>
- ---------------
(1) See Note 6 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Since March 31, 1997, the
Company has borrowed an additional $ under the Comerica Credit
Agreement, which will also be repaid out of the net proceeds of this
offering.
(2) John D. Fruth is the President of the Company. See Note 12 of Notes to
Consolidated Financial Statements.
(3) See Note 9 of Notes to Consolidated Financial Statements.
(4) Excludes 1,564,837 shares of Common Stock issuable at a weighted average
exercise price of $3.55 per share upon exercise of stock options outstanding
as of March 31, 1997 under the 1989 Plan and 1992 Plan, (ii) 1,000,000
additional shares of Common Stock reserved for future issuance under the
1997 Equity Incentive Plan, (iii) 150,000 shares of Common Stock reserved
for future issuance under the 1997 Directors Stock Option Plan, and (iv)
200,000 shares of Common Stock reserved for future issuance under the 1997
Employee Purchase Plan. See "Management -- Director Compensation,"
"Management -- Employee Benefit Plans," "Description of Capital Stock" and
Notes 10 and 16 of Notes to Consolidated Financial Statements.
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $16,463,000 or $ per share of Common Stock. "Pro
forma net tangible book value" per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
then outstanding (giving pro forma effect to the conversion of all
then-outstanding shares of Preferred Stock into shares of Common Stock). After
giving effect to the sale by the Company of the shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company), the
Company's pro forma net tangible book value as of March 31, 1997 would have been
$ , or $ per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares of Common Stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share at March 31,
1997.................................................. $
Increase in pro forma net tangible book value per share
attributable to new investors.........................
------
Pro forma net tangible book value per share after
offering.................................................
------
Dilution per share to new public investors................. $
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by new public investors purchasing shares in this
offering (at an assumed initial public offering price of $ per share and
before deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------- -------------------- AVERAGE
NUMBER(1) PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 8,398,083 % $8,038,000 % $0.96
New public investors...........
--------- --- ---------- ---
Total................ 100.0% $ 100.0%
========= === ========== ===
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares of Common Stock held by existing stockholders to , or
approximately % of the total shares of Common Stock ( shares, or
approximately %, if the Underwriters' overallotment option is exercised
in full), outstanding immediately after this offering, and will increase the
number of shares of Common Stock held by new investors to , or
% of the total number of shares of Common Stock ( shares, or
approximately %, if the Underwriters' overallotment option is exercised
in full), outstanding immediately after this offering. See "Principal and
Selling Stockholders."
The foregoing computations assume no exercise of stock options outstanding
as of March 31, 1997. As of March 31, 1997, there were options outstanding to
purchase a total of 1,564,837 shares of Common Stock at a weighted average
exercise price of $3.55 per share. In addition, 1,479,737 shares of Common Stock
are reserved for future issuance under the Company's stock plans. To the extent
that any of these options are exercised, or shares reserved for future option
grants or direct issuances are issued, there will be further dilution to new
public investors. See "Management -- Director Compensation,"
"Management -- Employee Benefit Plans" and Notes 10 and 16 of Notes to
Consolidated Financial Statements.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The selected data
presented below under the captions "Consolidated Statement of Operations Data"
and "Consolidated Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1996 are derived from the
consolidated financial statements of the Company, which consolidated financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
1995 and 1996, and for each of the years in the three-year period ended December
31, 1996, and the report thereon, are included elsewhere in this Prospectus. The
consolidated balance sheet data as of March 31, 1997, and consolidated statement
of operations data for the three months ended March 31, 1996 and 1997, are
derived from unaudited consolidated financial statements included elsewhere in
this Prospectus that have been prepared on the same basis as the audited
consolidated financial statements, and, in the opinion of management, contain
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the Company's consolidated operating results and
financial position. The consolidated operating results for the three months
ended March 31, 1997 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................ $16,548 $38,533 $48,503 $68,087 $90,509 $17,176 $23,879
Cost of sales........................................ 11,826 24,673 22,553 26,820 36,553 6,891 9,462
Gross profit....................................... 4,722 13,860 25,950 41,267 53,956 10,285 14,417
Selling and marketing expenses....................... 2,035 4,122 6,405 11,728 18,101 3,723 5,774
General and administrative expenses.................. 3,697 10,509 11,087 14,287 18,420 4,340 5,399
Reorganization costs................................. -- 746 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations(1)................... (1,010) (1,517) 8,458 15,252 17,435 2,222 3,244
Interest and other expense, net...................... (1,129) (3,264) (3,421) (2,593) (3,270) (689) (641)
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes......................... (2,139) (4,781) 5,037 12,659 14,165 1,533 2,603
Income taxes......................................... (755) 368 -- (3,869) (3,989) (429) (781)
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................. (2,894) (4,413) 5,037 8,790 10,176 1,104 1,822
Preferred stock dividends............................ -- (96) (82) (82) (82) (20) (20)
------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders..................................... $(2,894) $(4,509) $ 4,955 $ 8,708 $10,094 $ 1,084 $ 1,802
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share(2).................... $ 1.05 $ 0.19
======= =======
Shares used in computing pro forma net income per
share(2)........................................... 9,685 9,687
======= =======
OTHER DATA:
Lenses sold for disposable replacement regimens as a
percentage of total lenses sold.................... 15.2% 19.1% 53.0% 73.4% 83.5% 82.4% 88.3%
EBITDA(3)............................................ $ 1,467 $ 6,853 $11,472 $19,077 $23,595 $ 3,599 $ 5,290
Depreciation and amortization........................ 400 1,775 2,137 2,578 4,904 975 1,674
Capital expenditures................................. 1,049 2,489 2,153 13,558 12,256 4,191 2,041
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------- AS OF
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash............. $ 5,197 $ 3,774 $ 9,639 $ 5,346 $ 5,541 $ 3,378
Working capital........................................ 19,251 13,957 17,305 11,913 15,118 5,099
Total assets........................................... 35,892 32,191 35,645 50,874 63,503 69,738
Total debt............................................. 26,077 24,772 22,863 22,911 22,740 20,533
Stockholders' equity (deficit)......................... 4,096 (403) 4,447 13,292 23,889 25,690
</TABLE>
- ---------------
(1) Loss from operations for 1992 and 1993 includes non-recurring charges of
$2.1 million and $4.4 million, respectively, related to writedowns in the
carrying value of certain assets purchased in connection with the Company's
acquisition of American Hydron.
(2) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 2 of Notes to
Consolidated Financial Statements.
(3) "EBITDA" is defined herein as net income (loss) plus interest expense,
income taxes, depreciation and amortization expense, nonrecurring charges
and certain recurring non-cash income and expense items consisting of (i)
changes in the allowance for doubtful accounts, and the provision for excess
inventory and (ii) gain or loss on the sale of property and equipment. Such
recurring non-cash items aggregated $.3 million, $2.0 million, $1.2 million,
$.8 million, $1.3 million, $.3 million and $.5 million in the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 and the quarters ended March
31, 1996 and 1997, respectively. Management believes that EBITDA, as
presented, represents a useful measure of assessing the performance of the
Company's ongoing operating activities. The Company understands that, while
EBITDA is frequently used in the evaluation of companies, it is not
necessarily comparable to other similarly titled captions of other companies
as a result of potential inconsistencies in the method of calculation.
EBITDA is not intended as an alternative to net income as an indicator of
the Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. The following discussion contains forward-looking statements. The
Company's actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future actual results to
differ materially from the Company's recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors" and below. The Company assumes no obligation to update the
forward-looking statements or such factors.
OVERVIEW
The Company's products compete in both the disposable and annual
replacement segments of the soft contact lens market. Since the Company was
incorporated in 1985, its strategy has been to market high-quality contact
lenses to eyecare practitioners at competitive prices using a low cost-to-serve
operating structure. Until 1992, the Company was principally a distributor of
contact lenses. In September 1992, the Company became an integrated contact lens
company by acquiring the primary supplier of its lenses, Precision Lens
Laboratories Ltd., a United Kingdom-based company now called Ocular Sciences
Ltd. ("OSL"). In connection with the acquisition, PLL entered into a
royalty-bearing patent license with certain of the prior owners of PLL related
to the cast molding of contact lenses and agreed to supply lenses to Aspect
Vision Care Ltd. ("AVCL"), a United Kingdom-based contact lens distributor
controlled by certain of such owners. This license provided the Company with the
technology to manufacture high-quality contact lenses at significantly lower per
unit production costs. In connection with these agreements, PLL agreed not to
sell certain contact lenses covered by these agreements to third parties in the
United Kingdom and to pay an additional royalty for certain sales to contact
lens manufacturers, and AVCL agreed not to sell such lenses in North and South
America. See "Certain Transactions -- OSL Acquisition and Related Litigation."
In October 1992, the Company acquired the contact lens business in North
and South America of Allergan, Inc., which had been operating under the name
American Hydron. This acquisition provided the Company with a significantly
expanded customer base, an additional line of contact lens products and a
manufacturing facility in Puerto Rico. The purchase price was $24.5 million,
including acquisition costs of $1.2 million. The transaction and working capital
requirements were financed by the issuance of $5.0 million in Common Stock, $1.0
million in Preferred Stock and $22.7 million in senior and subordinated notes
and warrants to purchase common stock to the seller and a separate investor
group. The senior notes were repaid from bank borrowings in 1993 and the
subordinated notes were repaid with borrowings under the Comerica Credit
Agreement, which the Company entered into in October 1996. The Company intends
to repay all of the outstanding borrowings under the Comerica Credit Agreement
($14.5 million as of March 31, 1997), with a portion of the net proceeds of this
offering. See "Use of Proceeds." The Allergan acquisition resulted in goodwill
and other intangible assets of $3.5 million, all of which will be fully
amortized by the end of 1997. See "Certain Transactions -- Allergan/Hydron
Acquisition; Galen Financing."
Prior to the summer of 1993, the Company derived a substantial majority of
its sales from lenses for annual replacement regimens and the remainder of its
sales from lenses for monthly disposable replacement regimens. In the third
quarter of 1993, the Company began selling lenses for weekly disposable
replacement regimens. Since that time, substantially all of the Company's growth
in net sales has resulted from sales of lenses for disposable replacement
regimens, primarily weekly disposable regimens. In the first quarter of 1995,
the Company introduced a second line of lenses for weekly disposable replacement
regimens. The Company's lenses for disposable replacement regimens historically
have had lower selling prices and gross margins and are sold in much greater
volumes than its lenses for annual replacement regimens. In the first quarter of
1997, lenses for disposable replacement regimens accounted for approximately
88.3% of the Company's unit volume and nearly 73% of net sales. See "Risk
Factors -- Dependence on Single Product Line; Need to Increase Sales of
Disposable Lenses." The Company's international sales represented 18.1% and
20.7% of the Company's net sales in 1996 and the three months ended March 31,
1997, respectively, and are growing somewhat faster than domestic sales as the
Company establishes partnering and distributor relationships
22
<PAGE> 24
abroad. In 1996, approximately 54% of the Company's net sales came from sales to
ophthalmologists, optometrists and the distributors that sell to such
practitioners, and approximately 46% of the Company's net sales came from sales
from chain stores and mass merchants.
In May 1994, the Company and OSL commenced a litigation in the United
Kingdom against certain of the persons who sold OSL to the Company, including
Geoffrey and Anthony Galley, AVCL and certain related parties, for actions taken
after the acquisition. Certain of the defendants in that action brought suit
against OSL in a related patent infringement action. The Company also brought an
action in the United States against certain of the individuals that it had sued
in the United Kingdom (these suits, collectively, the "U.K. Litigation"). In
February 1997, the Company entered into a settlement agreement providing for,
among other things, (i) a mutual release and termination of all pending
litigation, (ii) the replacement of the previous patent license with a new,
fully paid-up, non-exclusive patent license that did not contain any
restrictions on the Company's ability to sell lenses to other contact lens
manufacturers, (iii) the grant by OSL to AVCL and the patent owners of a
royalty-free, non-exclusive license to certain OSL technology, and (iv) the
termination of OSL's obligation to supply contact lenses to AVCL and the
elimination of the geographic limitation on OSL's and AVCL's ability to sell
certain contact lenses. In connection with the settlement, the Company paid $3.3
million to the defendants and agreed to pay an additional $6.7 million upon the
earlier of February 27, 1998 or the sale of the Company's Common Stock in an
initial public offering. The Company has allocated $8.8 million of the total
consideration paid to the defendants to identifiable intangible assets as of the
date of the settlement based on their relative fair market values. See Note 14
of Notes to Consolidated Financial Statements. The Company plans to amortize
these intangible assets amount over a ten-year period. In connection with the
U.K. Litigation, the Company incurred legal expenses of $549,000, $1.3 million
and $2.5 million in 1994, 1995 and 1996 and $162,000 and $50,000 for the first
three months ended March 31, 1996 and 1997, respectively which are included in
the Company's general and administrative expenses. See "Certain
Transactions -- OSL Acquisition and Related Litigation."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain line items in the Company's Consolidated
Statements of Income.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 46.5 39.4 40.4 40.1 39.6
----- ----- ----- ----- -----
Gross margin..................... 53.5 60.6 59.6 59.9 60.4
Selling and marketing expenses..... 13.2 17.2 20.0 21.7 24.2
General and administrative
expenses......................... 22.9 21.0 20.3 25.3 22.6
----- ----- ----- ----- -----
Income from operations........... 17.4 22.4 19.3 12.9 13.6
Interest and other expense, net.... (7.0) (3.8) (3.6) (4.0) (2.7)
----- ----- ----- ----- -----
Income before taxes.............. 10.4 18.6 15.7 8.9 10.9
Income taxes....................... -- (5.7) (4.4) (2.5) (3.3)
----- ----- ----- ----- -----
Net income....................... 10.4% 12.9% 11.3% 6.4% 7.6%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Net Sales. Net sales represents gross sales less volume discounts, trial
set discounts, prompt payment discounts and allowances for sales returns. The
Company recognizes sales upon shipment of products to its customers. Discounts
and allowances for sales returns are accrued at the time sales are recognized.
Net sales increased 39.0% to $23.9 million in the three months ended March 31,
1997 from $17.2 million in the three months ended March 31, 1996. Substantially
all of this growth resulted from increased sales of the Company's lenses
marketed for weekly disposable replacement regimens. Unit sales of the Company's
lenses for annual replacement remained virtually constant between the comparison
periods. The prices of the Company's
23
<PAGE> 25
primary products did not change significantly between the comparison periods.
However, as a result of a shift in product mix from annual replacement lens
products to lower priced disposable lens products, the Company's overall average
selling price declined approximately 10%. The Company expects that the overall
average selling price that it realizes across its products will decline over
time because of (i) shifts in the Company's product mix from lenses for annual
replacement regimens to lenses for disposable replacement regimens and, within
its disposable lenses, to lenses that are replaced more frequently, (ii)
decreases in the prices of lenses for disposable replacement regimens and (iii)
increases in products sold internationally through distributors at prices lower
than direct sales prices in the United States. The Company does not expect there
to be significant growth in its sales of annual replacement lens products. The
Company does not expect its net sales growth rate from the three months ended
March 31, 1996 to the three months ended March 31, 1997 to be indicative of the
Company's long-term sales growth rate.
Gross Profit. Cost of sales is comprised primarily of the overhead,
material and labor costs of production and packaging, freight and duty,
inventory reserves, royalties to third parties and amortization of certain
intangible assets. A substantial portion of the Company's cost of sales is fixed
and therefore declines as a percentage of net sales as volume increases. Gross
profit increased 40.2% to $14.4 million, or 60.4% of net sales, in the three
months ended March 31, 1997 from $10.3 million, or 59.9% of net sales, in the
three months ended March 31, 1996. The Company's per unit production cost
reductions resulting from manufacturing volume increases and process
improvements were slightly greater than the Company's overall average selling
price decline, resulting in improved margins. Should the Company's overall
average selling price decline over time as expected and, given the higher
depreciation that will result from significantly increased purchases of property
and equipment, the Company will need to continue to reduce its per unit
production costs through increased automation, increased volume and reduced
packaging costs in order to improve, or even to maintain, its gross margins. See
"Risk Factors -- Manufacturing Capacity Constraints; Risks Associated With
Expansion and Automation of Manufacturing Operations."
Selling and Marketing Expenses. Selling and marketing expenses are
comprised primarily of cooperative merchandising allowances, salaries,
commissions and benefits for selling and marketing personnel, sample diagnostic
products provided to eyecare practitioners without charge and postage and
freight charges not billed to customers. Cooperative merchandising allowances
are reimbursements made principally to chain stores and mass merchants for items
such as advertising, displays and mailings that are intended to encourage the
fitting and wearing of the Company's disposable lenses. These allowances are
limited to a percentage of purchases of lenses for disposable replacement
regimens from the Company. Selling and marketing expenses increased 55.1% to
$5.8 million, or 24.2% of net sales, in the three months ended March 31, 1997
from $3.7 million, or 21.7% of net sales, in the three months ended March 31,
1996. The majority of the dollar increase and substantially all of the increase
in the percentage of net sales resulted from increases in cooperative
merchandising allowances. An additional portion of the dollar increase came from
increased selling and marketing expenses in the United Kingdom and Canada and in
Company-paid freight resulting from increased volume. The Company expects that
it will continue to increase cooperative merchandising allowances as a
percentage of net sales in order to seek further market share increases and, as
a result, that selling and marketing expenses will increase as a percentage of
net sales.
General and Administrative Expenses. General and administrative expenses
are comprised primarily of salaries and benefits for distribution personnel,
general and administrative personnel, research and development personnel,
professional services, consultants' fees and non-manufacturing facilities costs.
General and administrative expenses increased 24.4% to $5.4 million in the three
months ended March 31, 1997 from $4.3 million in the three months ended March
31, 1996, but declined as a percentage of net sales from 25.3% to 22.6%. The
majority of the dollar increase came from sales and use tax provision, higher
salaries and benefits to employees, fees to regulatory consultants and increased
depreciation. Substantially all of the decrease in the percentage of net sales
came from reductions in professional fees, partially as a result of the
settlement of the U.K. Litigation in February 1997. The Company believes that
its general and administrative expenses will increase as a result of expenses
associated with being a public company and amortization of intangible assets
acquired in connection with the settlement of the U.K. Litigation.
24
<PAGE> 26
Interest and Other Expense, Net. Interest and other expense, net decreased
7.0% to $641,000, or 2.7% of net sales, in the three months ended March 31,
1997, from $689,000, or 4.0% of net sales, in the three months ended March 31,
1996. This decrease primarily resulted from a reduction in the aggregate amount
of the Company's borrowings.
Income Taxes. Income taxes were $781,000 in the three months ended March
31, 1997 and $429,000 in the three months ended March 31, 1996 and income taxes
as a percentage of income before taxes increased to 30.0% in the three months
ended March 31, 1997 from 28.0% in the three months ended March 31, 1996. The
absolute level of the Company's effective tax rate is affected favorably by
earnings attributable to the Company's Puerto Rican operations, which are
partially exempt from United States income taxation. The Company anticipates
that it will continue to benefit from this favorable effect through 2001, when
the benefit of this exemption will expire for the Company under the current
provisions of the statute. Pending federal legislation would, if adopted, extend
this exemption beyond 2001 or replace it with other tax benefits after that
year. In addition, the Company's planned installation of highly automated
production lines in Puerto Rico could increase the Company's tax rate if it
results in a significant reduction in the Company's labor costs in Puerto Rico
in relation to its Puerto Rican earnings. See Note 11 of Notes to Consolidated
Financial Statements.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased 32.9% to $90.5 million in 1996 from $68.1
million in 1995. Substantially all of this growth resulted from increased sales
of the Company's weekly disposable lens products. The overall average price of
the Company's lenses for weekly disposable replacement regimens was similar in
1995 and 1996. The Company's sales of annual replacement products declined
slightly in both volume and average price from 1995 to 1996.
Gross Profit. Gross profit increased 30.8% to $54.0 million in 1996 from
$41.3 million in 1995, but gross margin decreased to 59.6% from 60.6% in 1995.
Gross margin declined primarily as a result of a faster decrease in overall
average selling price than decreases in unit cost of sales. The reduction in
overall average selling price of 13.2% was caused by an increased percentage of
disposable products, which have lower prices, and an increased percentage of
lower-priced international distributor sales in the Company's product mix.
Implementation of certain manufacturing process improvements was delayed by an
unrelated FDA inspection postponement at the Company's United Kingdom facility,
and this delay prevented the reduction in cost of sales from completely
offsetting the reduction in average selling price as planned.
Selling and Marketing Expenses. Selling and marketing expenses increased
54.3% to $18.1 million in 1996 from $11.7 million in 1995, while increasing to
20.0% of net sales in 1996 from 17.2% of net sales in 1995. A combination of
increased expenditures for cooperative merchandising allowances and, to a lesser
extent, for Company-paid freight caused both by an increase in volume and by the
need to fulfill product backorders rapidly and for shipments of diagnostic
lenses to eyecare practitioners without charge accounted for $4.6 million of the
year-to-year increase. Both the shipment of free diagnostic lenses and the
payment of cooperative merchandising allowances were factors related to the
Company's sales of disposable lenses, which grew at rates in excess of the
Company's overall net sales volume. The increase in cooperative merchandising
allowances accounted for substantially all of the increase in selling and
marketing expenses as a percentage of net sales, with increases in advertising
and promotion accounting for the remainder.
General and Administrative Expenses. General and administrative expenses
increased 28.9% to $18.4 million in 1996 from $14.3 million in 1995, but
decreased as a percentage of net sales to 20.3% from 21.0%. Legal expenses
related to the U.K. Litigation and the expense of the associated settlement
accounted for $1.2 million of the year-to-year dollar increase in general and
administrative expenses. Most of the remaining increase resulted from increases
in building and utilities expenses, salaries and benefits for general and
administrative personnel and professional fees. Excluding expenses of the U.K.
Litigation, general and administrative expenses would have decreased to 17.6% of
net sales in 1996 from 19.0% of net sales in 1995. This decrease was the result
of limited growth in distribution expenses relative to the growth in net sales
and
25
<PAGE> 27
absolute declines in the dollar amounts of amortization of goodwill and other
intangibles and of research and development expenses.
Income From Operations. Income from operations increased 14.3% to $17.4
million in 1996 from $15.3 million in 1995 but decreased to 19.3% of net sales
in 1996 from 22.4% of net sales in 1995. Excluding expenses of the U.K.
Litigation, income from operations in 1996 would have been 22.0% of net sales,
as compared to 24.3% of net sales in 1995.
Interest and Other Expense, Net. Interest and other expense, net increased
to $3.3 million in 1996 from $2.6 million in 1995 as a result of an increase in
interest expense, a decrease in interest income and a decrease in other income.
Income Taxes. Income taxes were $4.0 million in 1996 and $3.9 million in
1995. Income taxes declined as a percentage of income before taxes to 28.2% in
1996 from 30.6% in 1995. This reduction in the Company's effective income tax
rate resulted from an increase in earnings attributable to the Company's Puerto
Rican operations, which are partially exempt from United States income taxation.
Net Income. Net income increased 15.8% to $10.2 million in 1996 from $8.8
million in 1995. Excluding expenses of the U.K. Litigation, net income would
have increased $2.3 million or 23.5% from 1995 to 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Sales. Net sales increased 40.4% to $68.1 million in 1995 from $48.5
million in 1994. This growth in net sales resulted primarily from introduction
of the Company's 55% water lens for weekly disposable replacement regimens in
the first quarter of 1995 and continued increases in unit sales of the Company's
38% water lens for weekly disposable replacement regimens and, to a
significantly lesser extent, unit sales of the Company's daily-wear annual
replacement lenses.
Gross Profit. Gross profit increased to $41.3 million in 1995 from $26.0
million in 1994, while gross margin increased to 60.6% in 1995 from 53.5% in
1994. Gross margin improved because of per unit production cost declines
resulting from manufacturing volume increases and process improvements. These
per unit production cost declines more than offset a significant reduction in
overall average selling price caused by the increased percentage of lower-priced
disposable products in the Company's product mix. The Company incurred no
significant start-up costs from the launch of its second weekly disposable lens
product, and maintained historical product return and sales allowance rates as
well as provisions for excess and obsolete inventory.
Selling and Marketing Expenses. Selling and marketing expenses increased
83.1% to $11.7 million in 1995 from $6.4 million in 1994, while increasing to
17.2% of net sales in 1995 from 13.2% of net sales in 1994. A combination of
increased staffing levels in the United States, shipment of diagnostic lenses to
eyecare practitioners without charge, cooperative merchandising allowances and
company-paid freight caused largely by fulfillment of product backorders
accounted for $4.3 million of the year-to-year dollar increase and a substantial
majority of the increase in percentage of net sales. Both the shipment of free
diagnostic lenses and the payment of cooperative merchandising allowances were
factors related to the Company's sales of disposable lenses, which grew more
rapidly than the Company's overall net sales volume.
General and Administrative Expenses. General and administrative expenses
increased 28.9% to $14.3 million in 1995 from $11.1 million in 1994 but
decreased to 21.0% of net sales in 1995 from 22.9% of net sales in 1994.
Increased staffing levels in the Company's distribution center and finance
department, together with increases in depreciation and amortization related to
increased capital expenditures, accounted for $1.8 million of the increase.
Legal fees for the U.K. Litigation accounted for $771,000 of the year-to-year
increase. Excluding expenses of the U.K. Litigation, general and administrative
expenses declined from 21.7% of net sales in 1994 to 19.0% of net sales in 1995.
Income From Operations. Income from operations increased 80.3% to $15.3
million in 1995 from $8.5 million in 1994, while increasing to 22.4% of net
sales in 1995 from 17.4% of net sales in 1994. Excluding expenses of the U.K.
Litigation, income from operations would have increased to 24.3% of net sales in
1995 from 18.6% of net sales in 1994.
26
<PAGE> 28
Interest and Other Expense, Net. Interest and other expense, net decreased
to $2.6 million in 1995 from $3.4 million in 1994 as a result of lower
borrowings under the Company's credit facility, increased interest income on
higher cash and cash equivalent balances and increased other income.
Income Taxes. Income taxes in 1995 were $3.9 million or 30.6% of income
before taxes. In 1994, the Company did not record a tax provision because of
operating loss carryforwards from prior years. Those losses were fully utilized
in 1994. The effective tax rate for 1995 was below the combined federal and
state statutory rates, principally as a result of earnings attributable to the
Company's Puerto Rican operations, which are partially exempt from U.S. income
taxation.
Net Income. Net income increased 74.5% to $8.8 million in 1995 from $5.0
million in 1994. Excluding expenses of the U.K. Litigation, net income would
have increased 73.8% to $9.7 million in 1995 from $5.6 million in 1994.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of income of the
Company for its nine most recent quarters. In the opinion of management, this
unaudited consolidated financial information has been prepared on the same basis
as the audited consolidated financial information, and includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present this
information fairly when read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $13,893 $16,408 $18,249 $19,537 $17,176 $21,674 $25,600 $26,059 $23,879
Cost of sales................ 6,158 7,036 6,722 6,904 6,891 9,037 10,207 10,418 9,462
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 7,735 9,372 11,527 12,633 10,285 12,637 15,393 15,641 14,417
Selling and marketing
expenses................... 2,592 2,975 2,923 3,238 3,723 4,519 4,765 5,094 5,774
General and administrative
expenses................... 3,277 3,649 3,875 3,486 4,340 4,473 4,649 4,958 5,399
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 1,866 2,748 4,729 5,909 2,222 3,645 5,979 5,589 3,244
Interest and other expense,
net........................ (643) (611) (704) (635) (689) (643) (963) (975) (641)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes........ 1,223 2,137 4,025 5,274 1,533 3,002 5,016 4,614 2,603
Income taxes................. (367) (641) (1,351) (1,510) (429) (847) (1,415) (1,298) (781)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. $ 856 $ 1,496 $ 2,674 $ 3,764 $ 1,104 $ 2,155 $ 3,601 $ 3,316 $ 1,822
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 44.3 42.9 36.8 35.3 40.1 41.7 39.9 40.0 39.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross margin............... 55.7 57.1 63.2 64.7 59.9 58.3 60.1 60.0 60.4
Selling and marketing
expenses................... 18.7 18.1 16.0 16.6 21.7 20.9 18.6 19.6 24.2
General and administrative
expenses................... 23.6 22.3 21.3 17.8 25.3 20.6 18.1 19.0 22.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from operations..... 13.4 16.7 25.9 30.3 12.9 16.8 23.4 21.4 13.6
Interest and other expense,
net........................ (4.6) (3.7) (3.8) (3.3) (4.0) (3.0) (3.8) (3.7) (2.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before taxes........ 8.8 13.0 22.1 27.0 8.9 13.8 19.6 17.7 10.9
Income taxes................. (2.6) (3.9) (7.4) (7.7) (2.5) (3.9) (5.5) (5.0) (3.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income................. 6.2% 9.1% 14.7% 19.3% 6.4% 9.9% 14.1% 12.7% 7.6%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's quarterly operating results have varied in the past and are
likely in the future to vary significantly based upon a number of factors. The
Company's historical sales have exhibited significant seasonality, with the
third and fourth quarters having the highest net sales in any year and the first
quarter of the following year having lower net sales than the preceding two
quarters. The Company believes that the seasonality of its quarterly results is
primarily due to consumer buying habits. The Company believes that the
27
<PAGE> 29
historical increase in sales of its products in the third and fourth quarters
have been due to late summer (back-to-school) purchases by consumers and to
higher traffic in the fourth quarter through malls and mass merchandisers with
optical outlets. The Company further believes that the historical decline in the
first quarter has been due to reduced consumer buying in the post-holiday
season. In addition, due to the relatively high proportion of the Company's
fixed costs to its total costs, the Company's level of profitability has
historically increased significantly with increasing sales volumes, resulting in
disproportionately better results in the second half of each year. There can be
no assurance that these patterns will not continue in future years, although the
pattern may be somewhat less pronounced if the Company continues to increase the
proportion of sales represented by lenses for disposable replacement regimens,
which are replaced more frequently than lenses for annual replacement regimens.
See "Risk Factors -- Fluctuations In Operating Results; Seasonality."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, a fair market value-based method of accounting for employee
stock options or similar equity instruments. The Company has elected to continue
to measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," as was previously required, and to
comply with pro forma disclosure of net income and earnings per share as if the
fair market value-based method of accounting had been applied.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS 128 supersedes APB Opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation, and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and of fully diluted EPS with diluted EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The Company will
adopt SFAS 128 for its interim and annual consolidated financial statements that
end after December 15, 1997 and will restate all prior period earnings per share
data. The Company expects that its basic earnings per share will be greater than
primary earnings per share and diluted earnings per share will be substantially
similar to the pro forma net income per share disclosed in the consolidated
financial statements included elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
From January 1, 1994 to March 31, 1997, the Company's cash flows from
operating activities have been sufficient to fund substantially all of the
Company's cash requirements. Over this period, the Company generated cash-based
earnings (net income plus depreciation and amortization) of $37.1 million, which
were utilized to make purchases of property, plant and equipment of $30.0
million and to effect net repayments of long-term debt of $4.8 million. Net cash
provided by operating activities was $10.0 million in 1994, $9.5 million in
1995, $12.7 million in 1996 and $4.7 million in the first three months of 1997.
Working capital increased from $11.9 million at December 31, 1995 to $15.1
million at December 31, 1996 and then decreased to $5.1 million at March 31,
1997. The increase from 1995 to 1996 was primarily caused by an increase in
accounts receivable offset in part by an increase in accrued liabilities. The
decrease from 1996 to 1997 was primarily the result of an increase in accrued
liabilities associated with the settlement of the U.K. Litigation. At March 31,
1997, the Company had a cash and cash equivalents balance of $2.9 million and
restricted cash of $439,000 held in escrow for the rent of the Company's United
Kingdom facility.
In 1994, 1995, 1996 and the first three months of 1997, these cash flows
were derived principally from net income of $5.0 million, $8.8 million, $10.2
million and $1.8 million, respectively, adjusted for depreciation and
amortization of $2.1 million, $2.6 million, $4.9 million and $1.7 million,
respectively, offset by changes in operating assets and liabilities.
28
<PAGE> 30
Net cash used in investing activities in 1994, 1995, 1996 and the first
three months of 1997 was $2.1 million, $15.9 million, $11.5 million and $3.3
million. In 1994, 1995 and 1996, substantially all of this net cash was used to
purchase property and equipment. In the first three months of 1997, the Company
used $2.5 million (and will pay $800,000 of related withholding taxes in the
second quarter) to purchase intangible assets as part of the settlement of the
U.K. Litigation and $2.0 million to purchase property and equipment. Net cash
used in financing activities in 1994, 1995, 1996 and the first three months of
1997 was $2.0 million, $217,000, $316,000 and $2.2 million. In each of these
periods, net cash was used primarily for net repayments of long-term debt.
Under the Comerica Credit Agreement, as of March 31, 1997, the Company had
outstanding $9.0 million principal amount of loans under a term loan facility
and $5.5 million principal amount of loans under a revolving line of credit
facility, all of which bore interest as of such date at a rate of approximately
8.4% per annum. The Company will utilize a portion of the net proceeds from this
offering to repay these loans in full. See "Use of Proceeds" and Note 6 of Notes
to Consolidated Financial Statements. Effective upon the closing of this
offering, the Company intends to amend the Comerica Credit Agreement and has
received a commitment from Comerica Bank-California for an amended and restated
credit agreement (the "Amended Credit Agreement") under which the Company could
borrow up to $20 million in revolving credit loans. Outstanding borrowings under
the Amended Credit Agreement are expected to fluctuate based on investment
levels in working capital and property and equipment. The Company expects that
the Amended Credit Agreement will terminate on June 30, 2000, and will be
secured by a pledge of stock in the Company's subsidiaries and the accounts
receivable and inventory of the parent corporation. Following the closing of
this offering, borrowings under the Amended Credit Agreement would bear interest
at Comerica's prime rate or at Comerica's Eurodollar rate plus a specified
margin that varies based on the Company's ratio of debt to tangible net worth.
The Company's Puerto Rican subsidiary also has a credit facility with Banco
Bilbao de Vizcaya, Puerto Rico ("BBV"), under which it may borrow up to $5.8
million for the construction and development of a new manufacturing facility in
Puerto Rico and the purchase of new equipment. This loan is guaranteed by the
Company, matures in December 1997 and is secured by the machinery and equipment
purchased with the loan proceeds. As of March 31, 1997, the Company's Puerto
Rican subsidiary had $1.9 million principal amount of loans outstanding under
this facility. The Company is negotiating with BBV for an increase in the size
and extension of the maturity of this facility. The Company's Puerto Rican
subsidiary has received a commitment from the Government Development Bank of
Puerto Rico to provide up to $5.8 million of long-term loans to refinance its
borrowings from BBV upon completion of the new manufacturing facility, and the
Company is currently negotiating with the Government Development Bank for an
increase in its commitment. See Note 6 of Notes to Consolidated Financial
Statements.
The Company is obligated to pay the remaining $6.7 million owed under the
settlement agreement in the U.K. Litigation upon the closing of this offering.
See "Certain Transactions -- OSL Acquisition and Related Litigation." The
Company also intends to use a portion of the net proceeds of this offering to
repay a $2.9 million note to John D. Fruth, the Company's President. In
addition, the Company is obligated to make minimum base payments on
noncancelable operating leases of $2.3 million, $2.2 million and $2.1 million in
1997, 1998 and 1999, respectively. Finally, the Company has existing commitments
to make capital expenditures of $2.9 million and expects to make additional
capital expenditures of $40.6 million through 1998, primarily to add highly
automated production lines at its facility in the United Kingdom and for
equipment and leasehold improvements at its planned new facility in Puerto Rico.
See "Use of Proceeds."
The Company believes that the net proceeds from this offering, together
with its current cash and cash equivalents, further borrowings available under
its credit facilities and its anticipated net cash flow from operations, will be
sufficient to meet its anticipated cash needs for working capital, contractual
commitments and capital expenditures for the foreseeable future. If cash
generated from operations proves insufficient to satisfy the Company's liquidity
requirements, the Company may seek to sell additional equity or debt securities
or obtain another credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to the Company's
stockholders. The sale of additional debt or further bank borrowings could
subject the Company to additional restrictive financial covenants and
restrictions on the payment of dividends. There can be no assurance that
financing will be available to the Company in amounts or on terms acceptable to
the Company, if at all.
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<PAGE> 31
BUSINESS
The Company is a rapidly growing manufacturer and marketer of soft contact
lenses. The Company manufactures a broad line of soft contact lenses designed
for annual and disposable replacement regimens. The Company believes that its
lens designs provide wearers with a higher level of comfort and ease of handling
than those of its leading competitors. The Company's manufacturing technologies
permit consistent, cost-effective reproduction of these designs, allowing the
Company to offer its lenses at competitive prices. In addition, the Company has
implemented marketing strategies designed to assist eyecare practitioners, both
in independent practice and in retail chains, in retaining their patients and
monitoring patients' ocular health, thereby providing a significant incentive
for them to prescribe the Company's lenses. Furthermore, the Company has
continually focused on lowering its non-manufacturing costs, or "cost-to-serve,"
enabling it to increase its price flexibility and profitability. To minimize its
cost-to-serve, the Company utilizes a telemarketing sales force and targets its
marketing efforts toward the eyecare practitioner and not the consumer.
The Company believes that practitioners can increase their patient
retention and provide better ongoing patient care by providing
competitively-priced, high-quality products that are differentiated by brand
from those provided by competing channels. The Company has successfully
implemented a strategy based on addressing these needs of eyecare practitioners.
The Company markets its lenses solely to eyecare practitioners, both in private
practice and in retail optical chains, rather than to consumers. The Company
believes that focusing on the eyecare practitioner, who significantly influences
the selection of the brand of contact lenses worn by the patient, is critical to
its ability to market contact lenses successfully. The Company does not sell to
mail-order, pharmacies or other distribution channels that do not provide the
regular eye examinations necessary to maintain overall ocular health.
Over the last five years, the Company has established itself as the leader
in the spherical, non-specialty annual replacement segment of the United States
market with a market share of approximately 25% in 1996, based on unit sales.
Since its introduction of lenses for weekly disposable replacement regimens in
1993, the Company has steadily increased its share of this growing market,
reaching approximately 8% in 1996, based on unit sales. The Company's overall
unit sales have increased at a compound annual growth rate of approximately 81%
since 1992, primarily due to increased sales of its lenses for weekly disposable
replacement regimens. During the same period, while the average selling prices
of all of the Company's lenses combined declined 50%, the Company reduced its
per unit production costs by approximately 64% through manufacturing and
operating economies of scale as well as improvements in its manufacturing and
packaging processes. As a result, from 1992 to 1996, the Company's revenues and
operating income (excluding non-recurring charges in 1992) have increased at
compound annual growth rates of approximately 53% and 100%, respectively, while
its operating margins improved from 6.6% to 19.3%.
INDUSTRY OVERVIEW
The soft contact lens industry is characterized by increasing lens
consumption, declining unit prices and intense competition among the eyecare
practitioners and retail chains that fit, prescribe and sell contact lenses.
Industry analysts estimate that approximately 50% of the world's population
needs some type of vision correction. In the United States alone, therefore,
approximately 130 million people require some form of vision correction. The
Company believes that approximately 26 million people in the United States, or
20% of those requiring vision correction, wear contact lenses, making the United
States the world's largest market for contact lenses. While contact lenses have
been available for decades, the advent of soft lenses in 1971 changed the
industry substantially and stimulated significant penetration of the eyeglass
market by dramatically reducing the discomfort of earlier rigid lenses.
The first soft contact lenses were generally prescribed for replacement
every one to two years. While they were significantly more comfortable than hard
contact lenses, they required an extensive cleaning routine, consisting of daily
cleaning of the lens with a surfactant cleanser and an additional weekly
enzymatic cleaning to reduce protein accumulation. Even with this cleaning
program, these lenses often became progressively less comfortable to wear over
time. Additionally, the long replacement schedule of the lenses increased the
likelihood of ocular health problems if the wearer did not follow the required
cleaning program. In response to these and other factors, soft contact lenses
for disposable replacement regimens were introduced in 1988.
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<PAGE> 32
These replacement regimens, in which lenses are replaced daily, weekly or
monthly, have spurred a rapid increase in contact lens consumption in the United
States. While contact lenses for disposable replacement regimens are often made
from the same or similar polymers and can have the same or similar designs as
lenses for annual replacement regimens, they are generally produced at
substantially higher volumes, sold in larger quantities and packaged in less
expensive materials. These factors allow the lenses to be sold at substantially
reduced per unit prices, making more frequent lens replacement economically
feasible for the consumer.
Largely as a result of this increased frequency of lens replacement, the
number of soft contact lenses sold in the United States has increased at a
compound annual growth rate of approximately 20% from 1985 to 1995. This
increase in unit sales has provided increased manufacturing economies of scale
that, together with increased competition in distribution channels, has led to
significant reductions in average retail prices for lenses for disposable
replacement regimens. The Company believes that this, in turn, has led to
further increases in lens consumption. Despite the decline in per unit prices,
as wearers switch to more frequent replacement regimens, their annual
expenditures for lenses increase. For example, the Company's annual sales are
from five to seven times higher for a wearer following a bi-weekly replacement
regimen as compared to a wearer following an annual replacement regimen. As a
result, total dollar sales of contact lenses in the United States has increased
at a compound annual growth rate of approximately 11% per year from 1994 through
1996. The Company believes that the United States market for contact lenses will
continue to grow, although at a slower rate, as wearers continue to shift
towards more frequent lens replacement regimens. In addition, while the United
States and Canadian market represented approximately 50% of worldwide contact
lens unit sales volumes in 1996, market growth rates outside the United States
now exceed those in the United States. The Company believes that international
contact lens sales will continue to increase as low-priced, disposable contact
lenses become increasingly available in many international markets.
Most contact lenses are purchased from optometrists, both in private
practice and in retail chain stores, and from ophthalmologists in private
practice. The Company believes that the eyecare profession suffers from a
surplus of eyecare practitioners, and that the resulting competitive pressure
has been exacerbated by the increased prevalence of retail optical chains and
mass merchandisers that provide eyecare services. Eyecare practitioners in
retail chains offer services and products similar to those provided by
practitioners in private practice but offer longer hours in convenient
locations, such as shopping malls and other high-traffic areas. Because of their
high overhead costs, retail chains require higher patient volumes and
accordingly rely heavily on consumer advertising and promotional pricing to
generate sales. Consequently, competition to acquire and retain patients has
intensified.
The typical eyecare practitioner in both private practice and retail chain
channels depends heavily on sales of products, such as contact lenses and
eyeglasses. The Company believes that the typical optometric practice or optical
chain realizes approximately two-thirds of its revenue from sales of corrective
products, such as contact lenses and eyeglasses and approximately one-third of
its revenue from professional services such as eye examinations. Since the need
for vision correction is chronic, repeat sales of contact lenses can provide the
practitioner with a recurring, predictable revenue base.
While the introduction of disposable lens replacement regimens has led to
growth in the contact lens market, it has placed additional competitive pressure
on practitioners. Traditionally, patients purchased new lenses annually in
connection with their eye examinations. Today, a patient is still required to
see an eyecare practitioner initially to be fitted for contact lenses and to
receive a prescription. After the initial fitting, however, while the patient
may see the practitioner annually to monitor eye health, he or she typically
purchases new contact lenses to refill the prescription three or four times per
year. Most patients select contact lenses based on the recommendations of
eyecare practitioners, and accordingly practitioners have significant influence
in determining the brands of contact lenses worn by their patients. In addition,
because contact lens prescriptions are generally brand-specific, patients
generally continue to purchase the same brand for their prescription refills.
However, the prescribing practitioner risks losing the recurring sales
represented by prescription refills as nationally advertised lens brands are now
available through virtually every possible channel of distribution, including
mail-order and pharmacies.
The Company believes that practitioners can increase their patient
retention and provide better ongoing patient care by providing
competitively-priced, high-quality products that are differentiated by brand
from
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<PAGE> 33
those provided by competing channels. As a result, the Company believes that
there exist significant opportunities for manufacturers of contact lenses that
can effectively address these needs. Moreover, the Company believes that the
increased frequency of lens purchases resulting from the shift to lenses for
disposable replacement regimens can provide significant recurring revenues for
manufacturers that are able to produce and distribute large quantities of
high-quality lenses on a cost-effective basis.
STRATEGY
The Company has successfully implemented a strategy based on addressing the
needs of eyecare practitioners. This strategy has enabled the Company to achieve
a leading position in the U.S. market for lenses for annual replacement
regimens. The Company is continuing to pursue this strategy by leveraging the
practitioner relationships and reputation resulting from this leading position
to increase its share of the growing disposable market segment. The Company
believes that its high-quality, efficient manufacturing technology and
cost-effective operations position it to profitably exploit the growth
associated with this high-volume segment. The principal elements of the
Company's strategy include:
Focus Marketing Solely on Eyecare Practitioners. The Company's sales
and marketing efforts are directed at eyecare practitioners because the
practitioner strongly influences the brand of lenses purchased by the
patient. The Company advertises and promotes its products solely to
practitioners rather than to consumers. In addition, the Company does not
sell its lenses to mail-order, pharmacies and other distribution channels
that do not provide the eyecare services necessary to confirm lens fit and
monitor ocular health. By bar-coding each disposable unit shipped, the
Company can identify any diversion of its lenses to non-eyecare
practitioner channels. The Company structures its branding and marketing
strategies so that the patient will be more likely to refill prescriptions
from the practitioner or retail chain from whom he or she received the
initial prescription. As a result, the Company believes that it assists
eyecare practitioners in retaining patient reorders and improves their
ability to monitor their patients' ongoing ocular health, thereby providing
a significant incentive for practitioners to prescribe the Company's
lenses.
Employ Unique Brand Segmentation by Channel. The high-volume use of
lenses for disposable replacement regimens has resulted in increased
mass-market advertising of competing products and intensified competition
across distribution channels. Unlike its larger competitors who promote
nationally advertised consumer brands across multiple distribution
channels, the Company advertises and promotes its lenses for disposable
replacement regimens under specific brand names for the private practice
channel and other brand names for the retail chain channel. The Company
also provides private label brands for its larger customers. Branding by
distribution channel preserves brand exclusivity and allows practitioners
to differentiate lenses sold by them from those sold through competing
channels, providing them with a greater ability to retain their patients'
prescription refill business. The Company believes that, as a result, its
channel-specific branding has become increasingly valuable to eyecare
practitioners. By promoting the repeat purchase of lenses from the
prescribing practitioner, the Company believes that its marketing
strategies increase patient satisfaction and thereby encourage long-term
loyalty to its products, while also motivating practitioners to prescribe
its lenses.
Produce Superior Performing Products. The Company believes that its
contact lenses are superior in performance to those of its major
competitors in terms of comfort and ease-of-use. The Company's advanced dry
cast molding process and sophisticated lens designs maximize wearers'
comfort and improve shape retention of lenses, making them easier for
wearers to handle. In addition, the Company's lenses are designed and
manufactured to provide fitting characteristics similar to competitors'
lenses. In general, this interchangeability enables the practitioner to
switch a patient to the Company's lenses without extensive refitting time.
These advantages enable the Company to market its lenses successfully to
eyecare practitioners so that they may improve the quality of eye care for
both existing, as well as new, contact lens wearers.
Emphasize Low-Cost Efficient Manufacturing. With the growth of the
high-volume disposable market segment, low-cost, scalable manufacturing has
become increasingly important. The Company's dry cast molding technology
allows it to efficiently manufacture high-quality lenses. With dry cast
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<PAGE> 34
molding, the Company has been able to reduce its manufacturing costs per
lens by approximately 64% over the last three years while increasing its
production volumes approximately 470%. The Company believes that the
increased unit volumes resulting from the growing disposable lens market
and its continued investment in automation and capacity will enable it to
decrease per unit production costs further.
Minimize Cost-to-Serve. A substantial portion of the Company's costs
consists of the costs required to sell and market lenses and to take and
fill an order. The Company has continually focused on lowering these
non-manufacturing costs, or "cost-to-serve," allowing the Company to
increase pricing flexibility and profitability. The Company's primary means
of minimizing cost-to-serve are its use of telemarketing, rather than a
traditional direct sales organization and its use of advertising targeted
to practitioners rather than to consumers. This strategy differentiates the
Company from its competitors, and the Company believes that the cost of its
average sales call is substantially lower than that of its competitors that
rely on field sales representatives, as the Company's inside sales
personnel can make more calls per day at a lower annual cost per
salesperson. Unlike its leading competitors who market their products to
consumers through expensive mass-media campaigns, the Company further
controls its operating expenses by directing its marketing solely to the
eyecare practitioners that prescribe contact lenses. In addition, the
Company is investing in increased automation in its distribution operations
in order to maintain its low cost-to-serve.
Expand Internationally Through Strategic Relationships. The Company
believes that many international markets for soft contact lenses will grow
at faster rates than the United States market. However, many markets
outside the United States do not have the level of demand necessary for
local manufacturers to achieve the economies of scale required for
cost-effective lens production. The Company has begun to exploit
international growth opportunities by leveraging the scale of the U.S.
market to drive per unit manufacturing costs lower. Consistent with its
strategy of minimizing cost-to-serve, the Company's international growth
strategy is to establish strategic distribution and marketing relationships
with regional optical companies, such as the contact lens division of Carl
Zeiss in Europe and Seiko in Japan, to capitalize on their existing market
presence, customer relationships and local infrastructure. The Company
believes that, as a result, it can target growing international markets
effectively without significant investment in direct operations.
PRODUCTS
The Company manufactures a broad line of soft contact lenses that it
believes provide performance that is superior to other leading products at
competitive prices. Soft contact lens performance is defined primarily by
comfort (how the lens feels on the eye), handling (ease of placement and
removal), acuity of vision and physiological response. These qualities, in turn,
are determined primarily by lens design and the manufacturing process. The
Company's lenses incorporate sophisticated designs, including extremely thin
edges, a lenticulated carrier and a low-edge apex, that provide a high level of
comfort, enhanced shape retention and ease of handling. The Company's dry cast
molding process further improves handling and comfort by consistently and
accurately reproducing these designs. In addition, the Company's lenses are
designed and manufactured to provide fitting characteristics similar to those of
competitors' lenses. In general, these characteristics enable the practitioner
to switch a patient to the Company's lenses without extensive refitting time.
The Company believes that this interchangeability, together with its lenses'
performance and price, allows practitioners to easily prescribe the Company's
lenses to existing, as well as new, contact lens wearers.
The Company's contact lenses are made from flexible polymers containing 38%
or 55% water. The Company offers different brands for different replacement
regimens, from weekly and monthly replacement to annual replacement. A wearer's
replacement regimen is generally based on the recommendation of his or her
eyecare practitioner, who typically prescribes a lens brand targeted to that
regimen and who advises the wearer on the appropriate lens care procedures for
that regimen. However, the wearer may actually replace his or her lenses on a
more or less frequent basis. Given the basic functional similarity of lenses for
different replacement regimens, many of the Company's lenses for annual and
disposable replacement regimens are made from the same or similar polymers and
have the same or similar design specifications. Most of the Company's lenses
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<PAGE> 35
contain a light blue bulk-applied visibility tint that enables the wearer to see
and handle the lenses more easily, although some of the Company's more expensive
lenses for annual replacement contain a more expensive, individually applied
masked tint that improves handling and is less noticeable in the eye, and some
of the Company's lens are untinted. The Company's lenses for disposable and
annual replacement regimens are packaged in different quantities and branded
differently. See "Risk Factors -- Risk of Trade Practice Litigation; Changes in
Trade Practices."
Within different replacement regimens, the Company offers daily-wear
lenses, to be removed, cleaned and disinfected each night, and extended-wear
lenses that may be worn continuously, night and day, for up to seven days. In
addition, within each replacement regimen, the Company offers lenses having
different design parameters, diameters and base curves to enable practitioners
to fit their patients better.
Disposable Replacement Regimens
Lenses marketed for disposable replacement regimens accounted for 65.7% and
73.3% of the Company's net sales in 1996 and the quarter ended March 31, 1997,
respectively. See "Risk Factors -- Dependence on Single Product Line; Need to
Increase Sales of Disposable Lenses."
Weekly Replacement Regimens. The Company entered the growing weekly
disposable segment of the soft contact lens market with a 38% water content lens
in September 1993. The Company's introduction of a 55% water content lens in the
first quarter of 1995 provided a product directly competitive with the market
leader, Acuvue, which was the first soft contact lens to be marketed broadly in
the United States for weekly replacement. These lenses are marketed for
replacement every one to two weeks. The Company believes that its 55% water
lenses for weekly replacement can provide handling and comfort superior to that
provided by Acuvue, at a competitive price. The design and water content of the
55% water lens permit a high level of oxygen transmissibility and provide
increased comfort for overnight wear. A February 1997 independent study
comparing the Company's 55% water lens for weekly replacement to Acuvue found
that a substantial majority of the 70 patients studied preferred the Company's
lens for ease of use and comfort. This study reported that overall, 63% of these
70 patients preferred the Company's lens over the Acuvue lens. The Company
believes that its lenses for weekly replacement regimens have demonstrated
strong market acceptance, gaining U.S. market share steadily since their
introduction and standing at approximately 8% (based on units sold) of the one
to two week disposable market segment in the United States in 1996. The Company
markets its weekly disposable lenses to independent practitioners under the
Hydron Biomedics, Clinasoft, Procon and Mediflex brands and to retail chains
under the UltraFlex brand and private label brands. The Company packages its
lenses for weekly replacement in boxes, each containing six identical
blister-packed lenses.
Monthly Replacement Regimens (Planned Replacement Lenses). The Company
markets its lenses for monthly replacement regimens primarily under the Hydron
ProActive 55, Edge III ProActive and UltraFlex brands. These lenses are marketed
for replacement every one to three months. This replacement regimen provides a
lower cost alternative to weekly replacement.
Daily Replacement Regimens (Under Development). The Company is evaluating
the introduction of a low-cost lens for daily replacement. The product would be
packaged in boxes of 30 lenses. The Company believes that there may be
substantial demand for the convenience of a lens for single-day wear,
particularly among eyeglass wearers who wish to wear contacts only occasionally.
However, the Company believes that the level of demand for daily disposable
lenses is still uncertain. Certain of the Company's competitors have introduced,
and certain others plan to introduce, lenses for daily replacement. The Company
intends to evaluate the market response to their offerings before introducing
its own daily disposable lens. In addition, because of the substantially greater
volume requirements and lower selling prices that the Company believes will be
required to support daily replacement, the Company does not intend to offer
lenses for this replacement regimen until it has significantly increased its
manufacturing capacity and decreased its per unit production costs. See "Risk
Factors -- Intense Competition and "-- Manufacturing Capacity Constraints; Risks
Associated with Expansion and Automation of Manufacturing Operations."
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Annual Lens Replacement Regimens
The Company is a leading provider of soft lenses for annual replacement
regimens in the United States. Annual replacement lenses accounted for 30.4% and
23.3% of the Company's net sales in 1996 and the quarter ended March 31, 1997,
respectively. These lenses must be cleaned nightly and patients generally wear
these lenses until they become dirty or uncomfortable (usually a year for 38%
water products and about nine months for 55% water products). The Company
markets its annual replacement lenses primarily under three brand names, Edge
III, UltraFlex and Hydron. These product lines include a variety of lens designs
which allow practitioners to choose the lens that best meets their patients'
needs. The Edge III lens is a low-priced, daily-wear product, the Edge III XT is
a thinner lens, and the Edge III Thin is both thinner and larger in diameter.
The Company also offers the Edge III 55, which may be utilized as an
extended-wear lens. The Company packages its lenses for annual replacement
regimens in single-lens vials or blister packs.
Specialty Lenses
Specialty lenses accounted for approximately 3.5% and 2.8% of the Company's
net sales in 1996 and the quarter ended March 31, 1997, respectively. Toric
lenses are designed to correct vision for people with astigmatism, which is
characterized by an irregularly shaped cornea. The Company offers daily wear
toric lenses under the Ultra T brand that are manufactured for the Company by a
third party. In addition, the Company manufactures a line of custom toric
lenses, produced to order in its Markham, Ontario facility. Bifocal contact
lenses can help to correct presybyopia, or age-related difficulty in focusing on
near objects. The Company offers daily-wear bifocal lenses under the Echelon
brand which are cast-molded by the Company. In addition, the Company produces
its Versa-Scribe tinted lenses, sold in blue, aqua and green, to enhance the
color of the eye.
SALES AND MARKETING
In the United States and the United Kingdom, the Company's products are
sold primarily by its 54-person inside sales force, based in South San Francisco
and the United Kingdom. In order to maintain a low cost-to-serve, the Company
has maintained an inside sales force since its inception. This inside sales
force relies on telemarketing to sell the Company's products to both
practitioners and retail accounts. With over 40,000 practitioners in the United
States, the Company believes that this market can be reached effectively and
frequently through telemarketing, mailings, trade journals and trade shows, at a
relatively low cost. The Company's inside sales personnel can make presentations
to a significantly greater number of practitioners per day than the traditional
field sales representatives used by the Company's principal competitors, at a
lower annual cost per salesperson. The Company believes that this sales
efficiency provides it with a competitive advantage and contributes to its low
cost-to-serve. For larger national accounts, senior management also frequently
makes outside sales calls.
In recruiting its sales personnel, the Company seeks well-educated
candidates who it believes will be capable of both discussing technical
information and developing relationships with practitioners. As part of a
continuing effort to ensure the motivation, professionalism and effectiveness of
its sales representatives, the Company provides each sales representative with
substantial training in a program that was developed by the Company and has been
used since its inception. This program typically includes two weeks of initial
training and at least two hours a week of continuing instruction. This training
emphasizes the development of personal relationships with customers and the
technical aspects of contact lens fitting and design. The Company's current
sales representatives average approximately three years with the Company,
providing a level of experience that the Company believes enables them to work
effectively with optometrists and ophthalmologists. Each salesperson is assisted
by a computer database that maintains each practitioner's profile, monitors
ongoing activities and orders, allows sales personnel to enter information for
follow-up calls and highlights dates for return calls.
The Company also utilizes distributors that resell the Company's contact
lenses primarily to independent practitioners. In 1996, sales through
distributors represented approximately 13% of the Company's United States sales
and a substantial majority of its international sales. The Company believes that
by using
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distributors, it increases the availability of its lenses to many practitioners
who prefer to utilize a single source for several brands of lenses and manages
the costs involved in numerous small orders. In addition, the Company utilizes
advertising targeted to practitioners, such as direct-mail and advertisements in
professional journals to generate leads for its inside sales force. The Company
also provides customers with substantial merchandising allowances and has
developed a variety of promotional programs to purchase inventory at
significantly reduced prices in order to encourage trial of its products.
As a matter of policy, the Company does not sell lenses to mail-order
establishments because to do so would be inconsistent with its strategy of
focusing on the practitioner and because they do not provide the regular eye
examinations necessary to check the fit of the lenses and monitor overall ocular
health. To control the distribution of its lenses for disposable replacement
regimens, the Company places serialized bar-codes on each disposable product box
and blister pack and routinely monitors product availability at mail-order
replacement services. The Company has a policy of terminating the supply of
disposable lenses to its customers who are found to have diverted products to a
mail-order company. See "Risk Factors -- Risk of Trade Practice Litigation;
Changes in Trade Practices."
In 1996, the Company sold its products to approximately 13,000 independent
practitioner accounts and approximately 80 retail chains. The Company's
customers in each of the past three years have included 18 of the top 20 United
States optical retailers. Thirteen of these top 20 U.S. retailers, as well as
key international corporate accounts such as Synsam in Scandinavia, have
selected the Company's lenses for their private label. No single customer
accounted for more than approximately 8% of the Company's net sales in 1996. The
Company's ten largest customers in 1996 represented approximately 27% of the
Company's net sales in that year.
Product Branding. The Company has developed several different trademarked
brands for its lenses for disposable replacement regimens. Certain brands are
offered only to private practitioners. Other brands are offered only to retail
chains. In addition, private label brands are offered to certain high-volume
customers that wish to develop their own brand recognition and loyalty, and
private practitioners (or groups of private practitioners) meeting certain
volume criteria can similarly purchase "semi-exclusive" brands that are not
widely offered to other practitioners in their local market. The Company
believes that this approach differentiates the Company from its leading
competitors, which typically rely heavily on expensive consumer advertising and
promotion of national brands to generate brand awareness and demand. With the
same nationally advertised and promoted brands of disposable lenses available in
a number of major distribution channels, including mail-order replacement lens
companies and pharmacies, patients can bypass their original eyecare provider
when purchasing replacement lenses. By marketing its lenses under different
brands, segmented by distribution channel, the Company believes that it can
assist eyecare professionals in retaining their patients and improve patients'
long-term eye care. See "Risk Factors -- Risks of Trade Practice Litigation;
Changes in Trade Practices."
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The following table summarizes the brands under which the Company's current
disposable products are offered in the independent practitioner and retail
channels:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INDEPENDENT
REPLACEMENT PRACTITIONER RETAIL CHAIN
REGIMEN BRANDS BRANDS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Monthly Disposable Lenses Hydron ProActive 55 UltraFlex SmartChoice 55
Edge III ProActive UltraFlex SmartChoice
Clinasoft (semi-exclusive) Private labels
Procon (semi-exclusive)
Mediflex (semi-exclusive)
- --------------------------------------------------------------------------------------------
Weekly Disposable Lenses Hydron Biomedics 38 UltraFlex 7/14 38
Hydron Biomedics 55 UltraFlex 7/14 55
Clinasoft (semi-exclusive) Private labels
Procon (semi-exclusive)
Mediflex (semi-exclusive)
- --------------------------------------------------------------------------------------------
</TABLE>
International Markets. The Company anticipates that many international
markets for soft contact lenses will grow at faster rates than the United States
market, driven by increased availability of low-priced disposable lenses in
developed markets such as Europe, Japan and Canada and by increased disposable
income in emerging markets such as Asia and Latin America. However, many markets
outside the United States do not have the volume of demand necessary for local
manufacturers to achieve the economies of scale required for cost-effective lens
production. As a result, the Company's international strategy is to enter into
strategic distribution and marketing relationships with established regional
optical companies. The Company offers these companies lower cost lenses afforded
by its volume production efficiencies and the marketing benefits of a private
label brand, and they provide the Company with the benefits of their existing
market presence, customer relationships and infrastructure. The Company believes
that this strategy permits it to target growing international markets
effectively without significant investment in direct operations. See "Risk
Factors -- Risks Related to International Operations; Need to Increase Sales in
International Markets." The following summarizes the Company's international
sales operations:
Europe. To expand its penetration of this growing market, the Company
has developed strategic partnerships with a number of regional and local
contact lens distributors including the contact lens division of the Carl
Zeiss Company ("Zeiss"). In this relationship, Zeiss sells the Company's
disposable contact lenses under their brand names on a non-exclusive basis
throughout Europe. The Company also currently has distribution
relationships in Europe and the Middle East serving a number of countries,
as well as an inside sales organization based in Southampton, England that
uses telemarketing and other sales methods in the U.K. similar to those
used by the Company in the United States.
Canada. The Company has a direct selling organization based in Ontario
that uses field sales representatives as well as direct mail, journal
promotion and merchandising allowance programs similar to those used by the
Company in the United States. The Company also utilizes a small number of
Canadian distributors to resell its products, primarily to independent
eyecare practitioners.
Latin America. Although the Company expects unit growth in the
disposable segment of this emerging market, it also believes that unit
sales of lenses for annual replacement regimens will grow at a much faster
pace than in North America or Europe because of the lower level of consumer
disposable income. To expand the Company's penetration of this growing
market, the Company has entered into a number of non-exclusive distribution
arrangements in Latin America.
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Asia. The Company believes that the growth of unit sales in this
market will be driven primarily by sales of contact lenses for disposable
replacement regimens, particularly in Japan. Unit sales of lenses for
annual replacement regimens in East Asia are also expected to grow at a
faster rate than in North America or Europe due to comparatively low levels
of consumer disposable income. To capitalize on expected growth in the
Japanese market, the Company has formed a strategic distribution
relationship with Seiko Contact Lens, Inc., which is responsible for
obtaining local regulatory approvals and will distribute the Company's
lenses to Japanese eyecare practitioners through its network of
approximately 80 direct sales representatives. The Company has also
established distribution relationships with other soft contact lens
distributors in a number of countries in the Asian market.
DISTRIBUTION
The Company's distribution operations provide its customers with rapid and
reliable deliveries of its products in a cost-effective manner. Because the
Company's customers place both small orders for individual patients and large
inventory stocking orders, the Company's fulfillment system has the flexibility
to receive, fill and ship orders as small as a single lens and as large as tens
of thousands of lenses. Customers may place orders by toll-free telephone call
or facsimile. Certain of the Company's larger customers use the Company's
electronic data interchange ("EDI") services to place orders and receive order
acknowledgments, invoices, inventory status reports and customized pricing
information online, improving efficiency and timeliness for both the Company and
the customer. If the product is in stock, customer orders received by 2:00 p.m.
local time are generally shipped the same day.
The Company maintains three primary warehouse and distribution facilities
in South San Francisco, California, Southampton, United Kingdom and Markham,
Ontario. The largest and most sophisticated of these distribution centers is the
South San Francisco location, which primarily serves customers in the United
States and Latin America. Customers in Europe and Asia are primarily served from
the Southampton, United Kingdom facility and customers in Canada are primarily
served from the Markham, Ontario facility. Lenses are labeled and boxed at the
distribution center based on actual and anticipated customer orders. In 1996, an
average of approximately 2,100 orders were placed daily at the South San
Francisco facility from customers in North and Latin America and downloaded to
the distribution center for picking and shipping.
To further improve its cost-to-serve, the Company is currently testing, and
plans to implement, a highly computerized and automated retrieval system at its
South San Francisco facility. This system is designed to incorporate advanced
handling processes such as automatic dispensing, automated conveyors and radio
frequency dispatch. These processes will be integrated by software that, in
turn, is integrated into the Company's order entry system, allowing orders to be
downloaded, stocking location determined and fulfillment instructions delivered
automatically.
MANUFACTURING
Substantially all of the Company's products are manufactured in facilities
in Santa Isabel, Puerto Rico and in facilities near Southampton, United Kingdom.
The Company produces its lenses primarily through a manufacturing process known
as dry cast molding. In this process, a single use, two-part plastic mold is
manufactured by injection-molding machines utilizing high-precision optical
tooling that is also made by the Company. A liquid monomer mixture is dispensed
into the mold and polymerized to form a finished dry lens. The mold containing
the polymerized lens can be inventoried for an extended period under proper
conditions. The dry lens, once removed from the mold, is immersed in a fluid
bath for unreacted monomer extraction and hydration and is then inspected,
packaged and sterilized. Each of the Puerto Rico and United Kingdom plants can
generally hydrate dry lenses manufactured by the other. These capabilities
substantially increase the efficiency and flexibility of the Company's
manufacturing operations.
The Company's dry cast molding process enables the Company to reproduce
consistently the sophisticated designs of its lenses, including the lenticulated
carrier and low-edge apex that provide enhanced shape retention and superior
handling characteristics. In addition, the Company believes that this process
allows the reproduction of lenses that are designed to provide fitting
characteristics similar to leading competitors' lenses,
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<PAGE> 40
regardless of their manufacturing process. The Company also believes that the
dry cast molding process provides advantages over certain alternate production
methods in yield, throughput efficiency and performance. For example, each dry
lens in the Company's cast molding process emerges from the mold completely
finished, eliminating the need for additional polishing. This cast molding
process reduces manufacturing steps and facilitates automated handling and
inspection. The Company relies on a non-exclusive, perpetual, irrevocable patent
license for a significant element of its dry cast molding technology. See
"-- Trademarks, Trade Secrets and Patent Licenses." In addition to dry cast
molding, the Company's competitors utilize wet cast molding, lathing or
spin-casting processes. While the Company also manufactures certain low-volume
lenses utilizing lathing, this process accounts for less than 2% of its total
production.
The Company believes that dry cast molding is a highly scalable process,
which makes it well suited to address the high-volume requirements of the
growing disposable market. Using this technology, the Company has been able to
increase production volumes by approximately 470% from 1993 to 1996. The
disposable market, however, is relatively price-sensitive, and lenses for
disposable replacement regimens generally have significantly lower selling
prices than lenses for annual replacement regimens. The Company believes that
its ability to compete effectively in this growing market will depend on its
ability to continue to reduce its per unit production costs while increasing
manufacturing capacity and maintaining the high quality of its products.
The Company believes that reducing its manufacturing costs requires
increased automation to further improve manufacturing efficiencies and yields,
improved packaging designs that utilize lower cost materials and larger
production volumes to take advantage of economies of scale. While the Company
has implemented a number of cost reduction measures, such as blister packaging,
hot water extraction, automatic demolding and in-monomer tinting over the past
several years, the most significant improvements are expected to come from the
planned implementation of additional production lines incorporating a new
automated process based on the Company's current dry cast molding technology.
This automated process is currently being developed in a joint effort between
the Company and an engineering consulting firm and is expected to be operational
in 1998. The automated process is designed to integrate standard components such
as automated handling systems, conveyors, robotics and video inspection into the
manufacturing line. The Company believes that the new automated process will
enable it to reduce significantly the labor content of production as well as
unit packaging costs while increasing yields and efficiencies through improved
controls and consistency of environment. The Company believes that the automated
production lines will be capable of manufacturing considerably greater volumes
while occupying less space than the Company's existing lines and will be
installed in both the United Kingdom and Puerto Rico locations within the next
two years. The Company currently expects to invest approximately $44 million in
capital expenditures on these automated production lines through the year 2000.
See "Risk Factors -- Manufacturing Capacity Constraints; Risks Associated with
Expansion and Automation of Manufacturing Operations."
Over the past two years, the Company at times has experienced significant
backorders for its products, including lenses for disposable replacement
regimens. These backorders resulted primarily from customer demand for certain
products being in excess of the Company's inventory and short-term production
capabilities as well as the Company's inability to gain timely FDA clearance or
approval for certain products. The Company is developing expanded production
capacity and an integrated enterprise-wide computer system to manage the supply
chain dynamics of forecasting, manufacturing, labeling and stocking of its
products. The level of backorders is currently minimal and is limited to certain
low-volume products.
The Company's success will depend in part upon its ability to increase its
production volume on a timely basis while maintaining product quality, reducing
per unit production costs and complying with the FDA's GMP regulations. There
can be no assurance that the Company will not encounter difficulties in
expanding and automating its manufacturing facilities and increasing production,
including problems involving production yields, quality control, construction
delays and shortages of qualified personnel. The Company's failure to reduce per
unit production costs and maintain product quality could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Manufacturing Capacity Constraints; Risks of Expansion and
Automation of Manufacturing Operations" and "-- Risks Associated with
Interruption of Manufacturing Operations."
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<PAGE> 41
FACILITIES
The Company's principal administrative, sales, marketing, customer service,
packaging and distribution facility is located in South San Francisco,
California. The Company's principal manufacturing facilities are located near
Southampton, United Kingdom, and in Santa Isabel, Puerto Rico. The Company also
maintains sales offices in Canada, Hungary and the United Kingdom.
Rapid growth in sales volumes has required that the Company increase its
capacity by adding manufacturing space. The Company's first United Kingdom
manufacturing facility was established in 1988 and operated by PLL until 1992,
when it was acquired by the Company. The Company opened its second United
Kingdom manufacturing facility in 1996. The Company's Puerto Rican manufacturing
facility was acquired in late 1992 as part of its American Hydron acquisition.
This facility is now operating at or near capacity. As part of the Company's
plan to increase its manufacturing capacity, it intends to relocate its Puerto
Rican manufacturing facilities to a substantially larger new facility to be
constructed and leased near Santa Isabel, Puerto Rico. The Company is in the
process of negotiating the terms for the construction and leasing of the new
manufacturing facility with the Puerto Rican development agency. The Company
expects to begin construction during the third quarter of 1997. Until the new
Puerto Rican facility is completed, the Company intends to utilize excess
capacity in the United Kingdom to meet any requirements for increased volumes of
lens production. See "-- Manufacturing."
The following table describes the Company's principal facilities as of May
1, 1997:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FEET OWNED/LEASED
- ------------------------------- ------------------------------- ----------- -------------
<S> <C> <C> <C>
South San Francisco, Corporate 122,000 Leased
California(1) Headquarters/Sales/Distribution
Eastleigh, United Kingdom(2) Manufacturing 58,700 Leased
Santa Isabel, Puerto Rico(3) Manufacturing 34,372 Leased
Markham, Ontario Sales/Distribution/Custom 12,000 Leased
Manufacturing
Nursling, United Kingdom(4) Manufacturing 18,400 Owned/Leased
Budapest, Hungary Sales/Distribution 775 Leased
</TABLE>
- ---------------
(1) The Company's lease for this facility expires in October 30, 2002, and the
Company has an option to extend the lease until 2007 and to lease an
additional 30,000 square feet.
(2) The Company's lease for the facility expires on December 23, 2010.
(3) Represents three separate buildings. The Company plans to construct a new,
substantially larger facility in Santa Isabel, Puerto Rico, and to relocate
to this facility from its existing facilities.
(4) Represents three separate buildings. All three are currently vacant. Two are
leased under leases that expire on January 31, 1998 and March 24, 2011.
RESEARCH AND DEVELOPMENT
The basic technology used in the development and design of soft contact
lenses has not changed significantly in recent years. Accordingly, the Company's
research and development efforts are focused primarily on the development of
automated manufacturing processes to increase the efficiency and capacity of the
manufacturing operation. See "-- Manufacturing." In addition, the Company is
engaged to a limited extent in development of new soft contact lens products and
additional features. For example, the Company is developing lenses that absorb
ultraviolet light and lenses designed for daily disposable replacement regimens.
See "-- Government Regulation." During the years ended December 31, 1994, 1995
and 1996, and the quarter ended March 31, 1997, expenditures for research and
development (including obtaining regulatory approvals) were approximately $0.9
million, $1.0 million, $1.1 million and $0.4 million, respectively. See "Risk
Factors -- Risk of New Products and Technological Change."
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<PAGE> 42
TRADEMARKS, TRADE SECRETS AND PATENT LICENSES
The Company believes that its trademarks are among its most valuable assets
and has numerous trademark registrations in the United States, Europe and other
foreign countries. The Company's channel-specific branding strategy is dependent
on the Company's strategic use of its trademark portfolio, as the trademark for
each product brand is generally registered. The Company licenses the Hydron
trademarks under a license agreement that prohibits the use of those trademarks
outside of the Americas. The Company believes that there are no currently
pending challenges to the use or registration of any of the Company's registered
trademarks. There can be no assurance, however, that the Company's trademarks do
not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using its trademarks, any of which could have a material adverse
effect on the Company and its business.
The Company has obtained non-exclusive licenses from third parties to
patents for certain contact lens designs and manufacturing technologies used in
the production of its products. Pursuant to a patent license agreement with
several parties, including Geoffrey and Anthony Galley, principal stockholders
of the Company, the Company has obtained a perpetual, fully paid, worldwide,
non-exclusive, irrevocable license to certain patents and patent applications
covering technology that is significant in the Company's dry cast molding
processes. See "Certain Transactions -- OSL Acquisition and Related Litigation."
The Company has also obtained non-exclusive, fully paid, perpetual, worldwide
licenses to use certain technology relating to the tinting of lenses and to
manufacture a monomer used to produce certain of its lenses. In addition, the
Company licenses technology used in manufacturing its toric and bifocal contact
lenses under non-exclusive license agreements that limit the sales of products
manufactured using the licensed technology to the Americas. The Company believes
that it has all patent licenses that are necessary for the conduct of the
Company's business. However, to the extent the Company desires or is required to
obtain additional licenses to patents or proprietary rights of others, there can
be no assurance that any such licenses will be available on terms acceptable to
the Company, if at all.
In addition to trademarks and patent licenses, the Company owns certain
trade secrets, copyrights, know-how and other intellectual property. The Company
seeks to protect these assets, in part, by entering into confidentiality
agreements with certain of its business partners, consultants and vendors. There
can be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any such breach or that the Company's trade
secrets and other intellectual property will not otherwise become known or be
independently developed by others and thereby become unprotected. Furthermore,
no assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology or that the Company can
meaningfully protect its rights in unpatented proprietary technology.
The Company's policy is to prosecute and defend its key trademarks, trade
secrets and proprietary technology aggressively. The defense and prosecution of
intellectual property suits and related administrative proceedings are both
costly and time-consuming. There can be no assurance that the prosecution and
defense of the Company's intellectual property will be successful or that the
Company will be able to secure adequate intellectual property protections in the
future. The protection of intellectual property in certain foreign countries is
particularly uncertain. Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, and such events would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on Trademarks, Patent
Licenses and Trade Secrets; Risk of Intellectual Property Infringement" and
"Certain Transactions -- OSL Acquisition and Related Litigation."
COMPETITION
The market for soft contact lenses is intensely competitive and is
characterized by decreasing prices for many products. The Company's products
compete with the products offered by a number of larger companies including
Johnson & Johnson, Ciba-Geigy, Bausch & Lomb and Wesley Jessen. Most of the
Company's competitors have substantially greater financial, manufacturing,
marketing and technical resources, greater
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<PAGE> 43
market penetration and larger manufacturing volumes than the Company. Among
other things, these advantages may afford the Company's competitors greater
flexibility to manufacture large volumes of lenses and reduce product prices.
The Company believes that certain of its competitors are expanding, or are
planning to expand, their manufacturing capacity, and to implement new, more
automated manufacturing processes in order to support anticipated increases in
volume. As many of the costs involved in producing contact lenses are relatively
fixed, if a manufacturer can increase its volume, it can generally reduce its
per unit costs and thereby increase its flexibility to reduce prices. In
addition, competitors may reduce prices to achieve the sales volumes necessary
to utilize their increased capacity. Price reductions by competitors could make
the Company's products less competitive, and there can be no assurance that the
Company would be able to reduce its prices in response. The Company's ability to
respond to competitive pressures by decreasing its prices without adversely
affecting its gross margins and operating results will depend on its ability to
decrease its costs per lens. Any significant decrease in the Company's costs per
lens will depend, in part, on the Company's ability to increase its sales volume
and production capacity. There can be no assurance that the Company will be able
to continue to increase its sales volume or reduce its per unit production
costs. The failure of the Company to respond to competitive pressures, and
particularly price competition, in a timely manner would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, in response to competition, the Company may reduce prices, increase
cooperative merchandising allowances or otherwise increase spending, any of
which may also adversely affect its business, financial condition and results of
operations. See "Risk Factors -- Manufacturing Capacity Constraints; Risks
Associated with Expansion and Automation of Manufacturing Operations."
Soft contact lens manufacturers have generally differentiated themselves
from their competitors on the basis of product performance, marketing,
distribution channels and price. The Company believes that it is able to
distinguish its products on the basis of performance advantages and cost to
eyecare professionals and patients. Since contact lenses are distributed through
prescription, the Company also competes on the basis of its relationships and
reputation with eyecare practitioners. There can be no assurance that the
Company will continue to so distinguish its products or that it will be able to
realize the anticipated reductions in its per unit production costs.
The market for contact lenses is shifting from lenses marketed for annual
replacement regimens, where the Company has significant experience and a leading
market position, to lenses for disposable replacement regimens, where the
Company is less experienced. The disposable lens segment is particularly
competitive and price-sensitive and is currently dominated by the Acuvue product
produced by Johnson & Johnson. The Company believes that Johnson & Johnson's per
unit production costs are currently lower than those of the Company. A
significant price reduction by Johnson & Johnson for this product could prevent
the Company from gaining wider market acceptance in the disposable lens segment
and, as a result, could materially adversely affect the Company's business,
financial condition and results of operations. In addition, the lenses currently
offered in the United States by the Company in the disposable lens segment are
marketed for weekly and monthly replacement regimens. Certain of the Company's
competitors have introduced lenses for daily replacement at lower prices than
their current weekly and bi-weekly disposable lenses. The Company's ability to
enter and to compete effectively in the market for daily disposable lenses will
depend in large part upon the Company's ability to expand its production
capacity and reduce its per unit production costs. See "-- Dependence on Single
Product Line; Need to Increase Sales of Disposable Lenses."
The Company also encounters competition from manufacturers of eyeglasses
and from alternative technologies, such as surgical refractive procedures
(including new refractive laser procedures such as PRK, or photorefractive
keratectomy, and LASIK, or laser in situ keratomileusis). If surgical refractive
procedures become increasingly accepted as an effective and safe technique for
permanent vision correction, they could substantially reduce the demand for
contact lenses by enabling patients to avoid the ongoing costs and inconvenience
of contact lenses. Accordingly, there can be no assurance that these procedures,
or other alternative technologies that may be developed in the future, will not
cause a substantial decline in the number of contact lens wearers and thus have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Risk of New Products and
Technological Change" and "-- Intense Competition."
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<PAGE> 44
GOVERNMENT REGULATION
The development, testing, production and marketing of the Company's
products are subject to regulation by the FDA and other federal and state
agencies as well as foreign regulatory bodies. The Federal Food, Drug and
Cosmetic Act (the "FDC Act") and other statutes and FDA and other agency
regulations govern the preclinical and clinical testing, manufacture, labeling,
distribution, sale, marketing, advertising and promotion of medical devices such
as contact lenses. Noncompliance with applicable regulations can result in,
among other things, fines, injunctions, product recall or product seizures,
total or partial suspension of production, distribution, sales and marketing,
refusal of the FDA to grant approval of a PMA or clearance of a 510(k),
withdrawal of previously granted marketing approvals or clearances, a
recommendation by the FDA that the manufacturer or distributor not be permitted
to enter into government contracts, and criminal prosecution of the Company, its
officers and its employees. Sales of the Company's products outside the U.S. are
subject to regulatory requirements that, while generally comparable to those in
the U.S., vary widely from country to country.
FDA Regulation. For purposes of the applicable statutes and regulations,
the Company's products are generally treated as "medical devices." With
exceptions for certain medical devices first marketed before May 28, 1976, prior
to their commercial sale in the United States, medical devices must be cleared
or approved by the FDA or be exempted from the requirement of FDA clearance or
approval. In general, the regulatory process can be lengthy, expensive and
uncertain, and securing FDA clearances or approvals may require the submission
of extensive clinical data together with other supporting information to the
FDA.
In the United States, medical devices are classified as Class I, II or III,
on the basis of the controls deemed by the FDA to be necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, pre-market notification ("510(k)") and adherence to
FDA-mandated current good manufacturing practices ("GMP") requirements), and
Class II devices are subject to general controls and special controls (e.g.,
performance standards, postmarket surveillance, patient registries and FDA
Guidelines). Generally, Class III devices are those that must receive premarket
approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices) and also include most
devices that were not on the market before May 28, 1976 ("new medical devices")
and for which the FDA has not made a finding of "substantial equivalence" based
on a 510(k). Class III devices usually require clinical testing and FDA approval
prior to marketing and distribution.
Before a new medical device can be introduced into the United States
market, the manufacturer must obtain FDA clearance of a 510(k) or approval of a
PMA, unless the device is exempt from the requirement of such clearance or
approval. The Company's daily-wear products have been classified as Class II
devices subject to the 510(k) pre-market notification process, while the
Company's extended-wear products have been classified as Class III devices
subject to the PMA requirements. Regulation of the Company's daily-wear products
under the pre-market notification process dictates that new product
introductions in this category be preceded by FDA clearance of a 510(k)
pre-market notification containing information which establishes the new product
as substantially equivalent to a legally marketed Class I or II medical device
or to a legally marketed Class III device that does not itself require an
approved PMA prior to marketing ("predicate device"). A 510(k) must contain
information to support a claim of substantial equivalence, and this information
may include laboratory test results or the results of clinical studies of the
device in humans. Commercial distribution of a device for which a 510(k) is
required may begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate device. The FDA has recently been
requiring a more rigorous demonstration of substantial equivalence than in the
past and is more likely to require the submission of data from one or more human
clinical trials. The FDA has no specific time limitation by which it must
respond to a 510(k). The FDA may determine that a device is not "substantially
equivalent" to a predicate device or that additional information is needed
before a substantial equivalence determination can be made. The premarket
notification process generally takes five to twelve months without clinical
data, or twelve to eighteen months or more if clinical data are required to be
included in the notifications but it may take longer, and 510(k) clearance may
never be obtained. The range of clinical data required to be included in a
510(k) pre-market notification, if any, or a PMA application varies depending on
the nature of the new product or product modification. Generally, the 510(k)
notifications filed by the
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<PAGE> 45
Company do not require clinical data, and, if clinical data are required, the
trial is short-term. If the Company is unable to establish to the FDA's
satisfaction that a new product is substantially equivalent to a predicate
device, extensive preclinical and clinical testing will be required, additional
costs will be incurred, and FDA approval of a PMA for the product will be
required prior to market entry. Such approval, which cannot be assured in a
timely manner or at all, generally takes at least eighteen to twenty-four
months, and can take substantially longer.
Regulation of the Company's extended-wear products as Class III devices
requires that the Company submit a PMA to the FDA and obtain its approval of the
application prior to marketing such products in the United States. A PMA must be
supported by valid scientific evidence that typically includes extensive data,
including data from preclinical testing and human clinical trials to demonstrate
the safety and effectiveness of the device. The FDA ordinarily requires the
performance of at least two independent, statistically significant human
clinical trials that must demonstrate the safety and effectiveness of the device
in order to obtain FDA approval of the PMA. If human clinical trials of a device
are required and the device presents a "significant risk," the sponsor of the
trial (usually the manufacturer or the distributor of the device) is required to
file an investigational device exemption ("IDE") application with the FDA prior
to commencing human clinical trials. The IDE application must be supported by
data, typically including the results of animal and laboratory testing. If the
IDE application is approved by the FDA (or the FDA does not notify the sponsor
30 days after receipt of the application that the trials may not begin), and if
the study protocol is approved by one or more appropriate institutional review
boards ("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the human clinical trials after obtaining approval of the study
protocol by one or more appropriate IRBs, but FDA approval of an IDE is not
necessary unless the FDA notifies the sponsor that an IDE application is
required. Sponsors of human clinical trials are permitted under the FDA's
regulations to sell those devices distributed in the course of the trials
provided the price charged is not larger than that necessary to recover the
costs of manufacture, research, development and handling. An IDE supplement must
be submitted to, and approved by, the FDA (unless the FDA does not notify the
sponsor 30 days after receipt of the supplements that the change may not be
implemented) before a sponsor or an investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects. The FDA has the authority to re-evaluate,
alter, suspend or terminate clinical testing based on its assessment of data
collected throughout the trials.
The PMA must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling and promotional labeling. Upon submission of a PMA, the FDA
makes a threshold determination regarding whether the application is
sufficiently complete to permit filing for a substantive review. If the FDA
determines that the PMA application is sufficiently complete to permit such
review, the FDA will accept the application for filing. Once the submission is
accepted for filing, the FDA begins an in-depth review of the PMA. An FDA review
of a PMA generally takes from twelve to eighteen months from the date the PMA is
accepted for filing, but may take significantly longer if the FDA requests
additional information and if the sponsor files any major amendments to the PMA.
The review time is often significantly extended by the FDA's request for
clarification of information already provided in the submission. Toward the end
of the PMA review process, the FDA generally will conduct an inspection of the
manufacturer's facilities to ensure that the facilities are in compliance with
the applicable GMP requirements.
If the FDA's evaluations of both the PMA and the manufacturing facilities
are favorable, the FDA will issue either an approval letter (order) or an
"approvable letter" containing a number of conditions that must be met in order
to secure approval of a PMA. When and if those conditions have been fulfilled to
the satisfaction of the FDA, the agency will issue an order approving the PMA
and authorizing commercial marketing of the device for certain indications. If
the FDA's evaluation of the PMA or manufacturing facilities is not favorable,
the FDA will deny approval of the PMA or issue a "not approvable letter." The
FDA may also determine that additional preclinical testing or human clinical
trials are necessary, in which case approval of the PMA could be delayed for
several years while additional testing or trials are conducted and
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<PAGE> 46
submitted in an amendment to the PMA. The PMA process can be expensive,
uncertain and lengthy, and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing.
Even if 510(k) clearance or PMA approval is obtained, this clearance or
approval can be withdrawn by the FDA due to the failure to comply with
regulatory requirements or the occurrence of unforeseen problems following
initial clearance or approval. Modifications to existing 510(k)-cleared devices,
including changes in design, material, or manufacturing process that could
significantly affect safety or effectiveness, require submission and clearance
of new 510(k) pre-market notifications, as do significant changes in labeling,
e.g., a change in indications for use. Modifications to a device that is the
subject of an approved PMA, its labeling, or manufacturing process ordinarily
require approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA
typically require the submission of similar information as is required for an
initial PMA, except that the supplement is generally limited to that information
needed to support the proposed change from the product covered by the original
PMA. The approval of supplemental PMAs requires approximately one to two years.
All of the products currently marketed by the Company have received 510(k)
clearance or PMA approval. The Company anticipates that its planned
ultraviolet-absorbing daily-wear lens will be regulated as a Class II medical
device, requiring submission and clearance of a 510(k) pre-market notification,
and that its planned ultraviolet-absorbing extended-wear lens will be regulated
as a Class III medical device, requiring submission and approval of a PMA
supplement. There can be no assurance that these planned products or any other
future products will receive FDA marketing clearance or approval on a timely
basis or at all, or that its new daily-wear lens will not be subjected to the
PMA process. The Company has made minor modifications to its lenses which it
believes do not require the submission and clearance of new 510(k) pre-market
notifications or the submission and approval of PMA supplements. There can be no
assurance, however, that the FDA will agree with any of the Company's
determinations not to submit new 510(k) notices or PMA supplements for these
changes, that the FDA will not require the Company to cease sales and
distribution while seeking clearances of 510(k) notifications or approvals of
PMA supplements for the changes, or that such clearances and approvals, if
required, will be obtained in a timely manner or at all.
The FDC Act requires that medical devices, including contact lenses, be
manufactured in accordance with the FDA's GMP regulations. These regulations
require, among other things, that (i) the manufacturing process be regulated,
controlled and documented by the use of written procedures, and (ii) the ability
to produce devices which meet the manufacturer's specifications be validated by
extensive and detailed testing of every aspect of the process. The regulations
also require detailed record keeping and investigation of any deficiencies in
the manufacturing process or in the products produced. Manufacturing facilities
are subject to FDA inspection on a periodic basis to monitor compliance with GMP
requirements. If violations of the applicable regulations are noted during FDA
inspections of manufacturing facilities, the FDA can prohibit further
manufacturing, distribution and sale of the devices until the violations are
cured. On October 7, 1996, the FDA published a revision of its GMP requirements,
incorporating them into a new regulation called the quality system ("QS")
regulation. The QS regulation requires, among other things, pre-production
design controls, purchasing controls, and maintenance of service records. The QS
regulation will be effective June 1, 1997, except that the FDA has stated that
as long as manufacturers are taking reasonable steps to come into compliance
with the design control requirements, the FDA will not initiate action
(including enforcement cases) based on a failure to comply with these
requirements before June 1, 1998. Once in effect, the QS regulation is expected
to increase the cost of complying with FDA GMP and related requirements. The
Company believes that its facilities are in compliance with GMP regulations and
that the planned automation of its manufacturing facilities will not require FDA
approval.
The Company is also required to register as a medical device manufacturer
with the FDA. Devices marketed in the United States are subject to pervasive and
continuing regulatory oversight by the FDA and other agencies, and the Company
is subject to periodic inspection and record-keeping requirements. As a medical
device manufacturer, the Company is further required to comply with FDA
requirements regarding the reporting of allegations of death or serious injury
associated with the use of its medical devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to
45
<PAGE> 47
recur. Other FDA requirements govern product labeling and prohibit a
manufacturer from marketing a device with a cleared 510(k) or an approved PMA
for an uncleared or unapproved indication. Failure to comply with applicable
regulatory requirements can result in a wide variety of severe administrative,
civil, and criminal sanctions and penalties. See "Risk Factors -- Risks of
Regulatory Action."
International Regulation. Sales of medical devices outside the U.S. are
subject to foreign regulatory requirements that vary widely from country to
country. These laws and regulations range from simple product registration
requirements in some countries to complex clearance and production controls such
as those described above in others. As a result, the processes and time periods
required to obtain foreign marketing approval may be longer or shorter than
those necessary to obtain FDA approval. These differences may affect the
efficiency and timeliness of international market introduction of the Company's
products, and there can be no assurance that the Company will be able to obtain
regulatory approvals or clearances for its products in foreign countries.
Medical devices in the European Union ("EU") are subject to the EU's
medical devices directive. Under this directive, CE mark certification
procedures became available for medical devices, and the successful completion
of such procedures would allow certified devices to be marketed in all EU
countries. In order to obtain the right to affix the CE mark to its products,
medical device companies must obtain certification that its processes meet
European quality standards and establish that the product is considered safe and
fit for its intended purpose. After June 14, 1998, medical devices other than
active implants and in vitro diagnostic products may not be sold in EU countries
unless they display the CE mark. Although member countries must accept for
marketing medical devices bearing a CE marking without imposing further
requirements related to product safety and performance, each country may require
the use of its own language or labels and instructions for use.
The Company may also have to obtain additional approvals from foreign
regulatory authorities in order to sell its products in non-EU countries. Some
countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in the United States, while approvals in
countries such as Japan may require longer periods than in the United States.
Seiko Contact Lens Inc., the Company's distributor in Japan, will be responsible
for management of clinical trials and obtaining regulatory approval for the
Company's products, and such approval will therefore be outside the Company's
control. Accordingly, there can be no assurance as to when or whether such
approval will be received.
Other Regulation. The Company is also subject to numerous federal, state
and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. There can be no
assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations in the future or that compliance with such
laws or regulations will not have a material adverse effect upon the Company's
ability to do business.
The Company's success depends to a significant extent upon the success of
its customers in the retail optical industry. These customers are subject to a
variety of federal, state and local laws, regulations and ordinances, including
those regarding advertising, location and design of stores, products sold and
qualifications and practices of the industry. The state and local legal
requirements vary widely among jurisdictions and are subject to frequent change.
Furthermore, numerous health-care related legislative proposals have been made
in recent years in the United States Congress and in various state legislatures.
The potential impact of these proposals with respect to the business of the
Company's customers is uncertain, and there is no assurance that the proposals,
if adopted, would not have a material adverse impact on the Company.
There is substantial United States federal and state governmental
regulation related to the prescribing of contact lenses. These regulations
relate to who is permitted to prescribe and fit contact lenses, the prescriber's
obligation to provide prescriptions to its patients, the length of time a
prescription is valid, the ability or obligation of prescribers to prescribe
lenses by brand rather than by generic equivalent or specification, and other
matters. Although these regulations primarily affect contact lens prescribers,
and not manufacturers or
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<PAGE> 48
distributors of lenses such as the Company, changes in these regulations, or
their interpretation or enforcement, could adversely affect the effectiveness of
the Company's marketing strategy to eyecare practitioners, most notably the
effectiveness of the Company's channel-specific and private label branding
strategies. Additionally, given the Company's strategic emphasis on focusing its
marketing efforts on eyecare practitioners rather than consumers, the Company
may be more vulnerable than its competitors to changes in current trade
practices. Adverse regulatory or other decisions affecting eyecare
practitioners, or material changes in the selling and prescribing practices for
contact lenses, could have a material adverse affect on the Company's business,
operating results and financial condition.
PRODUCT LIABILITY AND INSURANCE
The Company has in the past been, and continues to be, subject to product
liability claims. Because contact lenses are medical devices, the Company faces
an inherent risk of exposure to product liability claims in the event that the
use of its products results in personal injury. The Company also faces the
possibility that defects in the design or manufacture of its products might
necessitate a product recall. From time to time, the Company has received, and
may continue to receive, complaints of significant patient discomfort, including
corneal complications, while using the Company's contact lenses. In certain
cases, the reasons for the problems have never been established. In addition, on
two occasions, in 1995 and 1997, the Company has recalled limited volumes of
certain of its products due to labeling errors. Although the Company has not
experienced material losses to date due to product liability claims or product
recalls, there can be no assurance that the Company will not experience such
losses in the future, that insurance coverage will be adequate to cover such
losses, or that insurance coverage will be available on acceptable terms or at
all. The Company maintains product liability insurance with coverage of $1
million per occurrence and an annual aggregate maximum of $2 million with
umbrella coverage of $10 million. A product liability or other judgment against
the Company in excess of the Company's insurance coverage or a product recall
could have a material adverse effect on the Company's business, financial
condition and results of operations.
EMPLOYEES
As of March 31, 1997, the Company employed 1,320 persons, including 275 in
the United States, 472 in the United Kingdom, 521 in Puerto Rico, 42 in Canada
and 10 in Hungary. Of the Company's employees, 103 are engaged in sales and
marketing, 935 in manufacturing, 203 in distribution, six in process development
and 63 in finance and administration. The Company's success is dependent in part
on its ability to attract and retain qualified employees. In particular, the
loss of John D. Fruth, the Company's founder and President, would have a
material adverse effect on the Company's development and marketing efforts. None
of the Company's employees is represented by a labor union or is the subject of
a collective bargaining agreement with respect to his or her employment by the
Company. The Company has never experienced a work stoppage and believes that its
employee relations are good. See "Risk Factors -- Dependence on Key Personnel."
47
<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages and
positions as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
John D. Fruth 53 President, Chief Executive Officer and Chairman of the
Board of Directors
Bradley S. Jones 35 Vice President, U.S. Sales
Daniel J. Kunst 44 Vice President, Sales and Marketing, and Director
Gregory E. Lichtwardt 42 Vice President, Finance, Chief Financial Officer and
Treasurer
John Lilley 50 Vice President, Manufacturing
Edgar J. Cummins(1) 53 Director
Terence M. Fruth 58 Director and Corporate Secretary
William R. Grant(1) 72 Director
Francis R. Tunney, Jr.(1) 49 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee and Compensation Committee
JOHN D. FRUTH founded the Company in 1985 and has been the President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its inception. Prior to joining the Company, Mr. Fruth worked in the regulatory
affairs department and served as President, contact lens division, of
CooperVision, Inc., a contact lens manufacturer, from 1976 to 1983. From 1972 to
1976, Mr. Fruth worked in sales and marketing management positions at Bausch &
Lomb, a company that manufactures and markets health-care products, including
contact lenses. John D. Fruth is the brother of Terence M. Fruth.
BRADLEY S. JONES has been Vice President, U.S. Sales, of the Company since
July 1991. From 1989 to 1991, he served as the Company's Director of Sales, and
from 1986 to 1988, he served as the Company's Director of National Accounts. He
joined the Company in 1985 as District Sales Manager.
DANIEL J. KUNST has been Vice President, Sales and Marketing, of the
Company since August 1995. Mr. Kunst has also been a member of the Board of
Directors of the Company since October 1987 and served as Executive Vice
President and Chief Operating Officer of the Company from 1987 to February 1992.
From November 1994 to May 1995, Mr. Kunst served as Chief Executive Officer of
NeoLens, Inc., an optical products company. From January 1993 to October 1994,
Mr. Kunst was President, Chief Executive Officer and a director of Cymed, Inc.,
a manufacturer and marketer of medical devices. From March 1992 to January 1993,
he worked as an independent consultant to ophthalmic companies. Additionally,
from 1990 to 1995, Mr. Kunst was a member of the board of directors of VISX,
Inc., a manufacturer of ophthalmic lasers. From 1979 to 1987, Mr. Kunst held
various management positions with CooperVision, Inc., including President,
Professional Resources Division; Senior Vice President, Ophthalmic Products
Division; and Vice President, Sales and Marketing, Revo Sunglass Division.
GREGORY E. LICHTWARDT has been Vice President, Finance, and Chief Financial
Officer of the Company since April 1993 and Treasurer since May 1997. Prior to
joining the Company, from November 1990 to February 1993, Mr. Lichtwardt was
Vice President, Finance, of the Humphrey Instruments Division of Allergan, Inc.
("Allergan"), a health-care company focused on specialty pharmaceutical
products. From February 1989 to November 1990, he served as Director of
Operations, Accounting and Planning, of Allergan's Optical Division. From
December 1986 to January 1989, he was Corporate Controller of AST Research,
Inc., a personal computer manufacturing company, and from June 1980 to December
1986, Mr. Lichtwardt held several financial positions within several different
divisions of American Hospital Supply Corporation, a health-care and medical
products company.
JOHN LILLEY has been Vice President, Manufacturing, of the Company since
June 1996. From 1990 to June 1996, Dr. Lilley served as Manufacturing Director
of Bespak plc, an English company that manufactures precision plastic
injection-molded components for the pharmaceutical industry. From 1989 to 1990,
he was
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<PAGE> 50
Operations Director of Birkby Plastics, a division of the Plessey Plastics
Group, which manufactures plastic injection-molded components for the automotive
and computer industries.
EDGAR J. CUMMINS has been a member of the Board of Directors of the Company
since October 1992. Since May 1995, Mr. Cummins has served as Chief Financial
Officer of Chiron Vision Corporation, an ophthalmic surgical company. From 1986
to May 1995, he was Chief Financial Officer of Allergan. Prior to his service
with Allergan, Mr. Cummins held various senior financial positions with American
Hospital Supply Corporation, a health-care and medical products company, and
Baxter Travenol Laboratories, Inc., a medical products company, over a period of
seven years. Prior to that, he spent five years as a financial consultant for
Arthur Young & Company, a certified public accounting company. Mr. Cummins also
sits on the board of directors of Biopsys, Inc., a surgical device company.
TERENCE M. FRUTH has been Corporate Secretary and a member of the Board of
Directors of the Company since August 1992. Since 1985 Mr. Fruth has been a
partner, Vice President, and Corporate Secretary of Fruth & Anthony, P.A., a
Minneapolis-based law firm specializing in commercial litigation. Mr. Fruth has
been practicing law for 30 years. Mr. Fruth is a member of both the Minnesota
State and American Bar Associations. Terence M. Fruth is the brother of John D.
Fruth.
WILLIAM R. GRANT has been a member of the Board of Directors of the Company
since October 1992. He is currently the Chairman of Galen Associates, a venture
capital firm specializing in emerging health-care companies, and has held that
position since 1989. From 1987 to 1989, Mr. Grant served as Chairman of New York
Life International Investment, and, from 1979 to 1987, he was the Chairman and
President of MacKay-Shields Financial Corporation. Prior to 1979, Mr. Grant had
25 years' experience with Smith Barney, Harris Upham & Co., Inc., where he
served as President and, from 1976 to 1978, Vice Chairman. Mr. Grant currently
serves as Vice Chairman of SmithKline Beecham plc and sits on the boards of
directors of Allergan; Fluor Corporation, an engineering, construction and
diversified services company; MiniMed, Inc., a company which specializes in drug
delivery devices and systems; New York Life Insurance Company, an insurance and
financial services company; Seagull Energy Corporation, an oil and gas company;
and Witco Corporation, a specialty chemicals company.
FRANCIS R. TUNNEY, JR. has been a member of the Board of Directors of the
Company since October 1996. Mr. Tunney has been Corporate Vice President,
General Counsel, and Corporate Secretary of Allergan since January 1990. From
1989 to 1991, Mr. Tunney was Senior Vice President, General Counsel and
Corporate Secretary of Allergan. From 1979 to 1989, Mr. Tunney held several
positions at SmithKline Beecham plc, including counsel for its Medical Device
and Diagnostics Division, acting general manager for its Medical Ultrasound
Division, and senior international attorney within its corporate law department.
Directors are elected at each annual meeting of stockholders to serve until
the next annual meeting of stockholders or until their successors are duly
elected and qualified or until their earlier resignation, removal or death.
William R. Grant and Francis R. Tunney, Jr. were elected to the Board of
Directors (the "Board") pursuant to the terms of a shareholders' agreement (the
"Shareholders' Agreement") under which Galen Partners, L.P. and Galen Partners
International, L.P., collectively, are entitled to nominate one director of the
Company and Allergan is entitled to nominate one director of the Company,
subject to certain conditions. See "Certain Transactions -- Allergan/Hydron
Acquisition; Galen Financing." Mr. Grant was nominated by Galen Partners, L.P.
and Galen Partners International, L.P., and Mr. Tunney was nominated by
Allergan. The Shareholders' Agreement will terminate on the closing of this
offering. Executive officers are chosen by, and serve at the discretion of, the
Board of Directors.
BOARD COMMITTEES
The Company's Compensation Committee was formed in January 1993 to review
and approve the compensation and benefits for the Company's key executive
officers, administer the Company's stock purchase and stock option plans and
make recommendations to the Board regarding such matters. The Compensation
Committee is currently composed of Edgar J. Cummins, William R. Grant and
Francis R. Tunney, Jr. No interlocking relationship exists between the Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
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<PAGE> 51
The Audit Committee was formed in January 1993 to review the internal accounting
procedures of the Company and to consult with and review the services provided
by the Company's independent auditors. The Audit Committee is currently
comprised of Edgar J. Cummins, William R. Grant and Francis R. Tunney, Jr.
DIRECTOR COMPENSATION
Members of the Board do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending meetings
of the Board. Historically, the Board members have been issued shares as
compensation for service. In January 1997, William R. Grant, Terence M. Fruth,
Edgar J. Cummins and Francis R. Tunney, Jr. were issued 371, 340, 340 and 93
shares of Common Stock, respectively, as compensation for service during 1996.
In May 1997, the Board adopted and the stockholders approved the 1997
Directors Stock Option Plan (the "Directors Plan") and reserved a total of
150,000 shares of the Company's Common Stock for issuance thereunder. Only
members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the
Directors Plan. On the effective date of the Registration Statement (the
"Effective Date"), each eligible director will automatically be granted an
option to purchase 15,000 shares. Each eligible director who becomes a member of
the Board after the Effective Date will automatically be granted an option to
purchase 15,000 shares upon joining the Board. In addition, each eligible
director will automatically be granted an option to purchase 7,500 shares on
each anniversary date of such director's initial option grant under the
Directors Plan if such director has served continuously as a member of the Board
since the date such director was first granted an option under the Directors
Plan. All options issued under the Directors Plan will vest as to 1/36 of the
shares in each month following the date of grant, provided the optionee
continues as a member of the Board or as a consultant to the Company. The
exercise price of all options granted under the Directors Plan will be the fair
market value of the Common Stock on the date of grant.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Company provide that (i) the Company is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions, (ii) the Company may indemnify
its other employees and agents as set forth in the Delaware General Corporation
Law, (iii) to the fullest extent permitted by the Delaware General Corporation
Law, the Company is required to advance expenses, as incurred, to its directors
and executive officers in connection with a legal proceeding, subject to certain
very limited exceptions, (iv) the rights conferred in the Bylaws are not
exclusive and (v) the Company is authorized to enter into indemnification
agreements with its directors, officers, employees and agents.
The Company has entered into indemnity agreements with each of its current
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Company's Bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company regarding which indemnification is sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification.
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during 1996 by (i) the Company's Chief Executive officer and
(ii) the Company's next four most highly compensated executive officers (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION
----------------------------------------- AWARDS
OTHER ANNUAL ---------------------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) SECURITIES UNDERLYING OPTIONS (#)
- ------------------------------ --------- -------- ------------------ ---------------------------------
<S> <C> <C> <C> <C>
John D. Fruth, President and
Chief Executive Officer..... $ 262,692 $101,635 $ 6,234(2) --
Gregory E. Lichtwardt, Vice
President, Finance, Chief
Financial Officer and
Treasurer................... 133,000 34,467 167 --
Bradley S. Jones, Vice
President, U.S. Sales....... 109,615 43,424 103 --
Daniel J. Kunst, Vice
President, Sales and
Marketing................... 135,000 11,553 173 --
John Lilley, Vice President,
Manufacturing(3)............ 88,667 -- 32,397(4) 40,000
</TABLE>
- ---------------
(1) For all but John D. Fruth and John Lilley, Other Annual Compensation
represents premiums paid by the Company with respect to life insurance for
the benefit of the respective individual.
(2) Represents premiums paid by the Company with respect to term life insurance
for John D. Fruth's benefit in the amount of $884 and automobile expenses
paid by the Company for his benefit in the amount of $5,350.
(3) On March 27, 1996, the Company executed an employment agreement with John
Lilley, and in June 1996 he joined the Company. The Company agreed to employ
Dr. Lilley as Vice President, Manufacturing at an annual salary of $152,000.
In addition, Dr. Lilley is eligible to receive a bonus of up to 40% of his
annual salary at the discretion of the Company based on the achievement of
manufacturing goals and objectives established by the Company at the start
of each fiscal year. Dr. Lilley also received an option to purchase 40,000
shares of the Company's Common Stock at an exercise price of $10.06 per
share. Under the employment agreement, his employment will continue unless
and until either the Company or Dr. Lilley serves on the other 12 months'
notice of termination, provided that the Company has the right to terminate
his employment upon his 65th birthday.
(4) Represents a $22,165 contribution by the Company to a pension plan for the
benefit of Dr. Lilley and a $10,232 reimbursement for automobile expenses.
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<PAGE> 53
OPTION GRANTS IN 1996
The following table sets forth information regarding option grants during
1996 to each of the Named Executive Officers. In accordance with the rules of
the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective six-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------------------- VALUE AT ASSUMED
% OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN OPTION TERM(3)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) YEAR(2) PER SHARE ($/SH) DATE 5% 10%
- ----------------------- ------------- ------------- ---------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John D. Fruth.......... -- -- -- -- -- --
Gregory E.
Lichtwardt........... -- -- -- -- -- --
Bradley S. Jones....... -- -- -- -- -- --
Daniel J. Kunst........ -- -- -- -- -- --
John Lilley............ 40,000 20.2 $10.06 05/31/02 136,854 310,476
</TABLE>
- ---------------
(1) Options granted to John Lilley under the 1989 Stock Option Plan in 1996 are
nonqualified stock options that were granted at fair market value and that
vest 20% per year over a five-year period so long as Dr. Lilley is employed
by the Company. The options have a term of six years.
(2) The Company granted options to purchase 197,767 shares of Common Stock to
employees during 1996.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
AGGREGATED OPTION EXERCISES IN 1996 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of stock
options by the Named Executive Officers during 1996 and stock options held as of
December 31, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISES(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Fruth.......... -- -- 640,000 -- 9,864,128 --
Gregory E.
Lichtwardt........... -- -- 48,000 32,000 627,000 418,000
Bradley S. Jones....... 140,000 1,333,640 20,000 40,000 261,250 522,500
Daniel J. Kunst........ -- -- 10,000 40,000 99,300 397,200
John Lilley............ -- -- -- 40,000 -- 237,600
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock at December 31,
1996 ($16.00 per share) less the exercise price payable for such shares.
EMPLOYEE BENEFIT PLANS
1989 Stock Option Plan. Under the 1989 Stock Option Plan (the "1989 Plan"),
1,469,032 shares of Common Stock are reserved for issuance for options available
for grant to employees, officers, directors, consultants, independent
contractors and advisors. As of March 31, 1997, options to purchase 924,837
shares of the Company's Common Stock were outstanding under the 1989 Plan. The
1989 Plan will be terminated upon the effective date of the Registration
Statement for this offering, when the 1997 Equity Incentive Plan will become
effective. As a result, no further options may be granted under the 1989 Plan
following the closing of this offering. However, termination does not affect any
outstanding options, all of which will remain outstanding until exercised or
until they terminate or expire in accordance with their terms. The terms of
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<PAGE> 54
options granted under the 1989 Plan and the administration of the plan are
substantially the same as those that pertain to the 1997 Equity Incentive Plan,
except that the vesting of options granted prior to March 1, 1995 under the 1989
Plan accelerates upon certain acquisitions of the Company unless the options are
assumed or substituted by the acquiring corporation.
1992 Officers and Directors Stock Option Plan. There are options to
purchase 640,000 shares of the Company's Common Stock outstanding under the 1992
Officers and Directors Stock Option Plan (the "1992 Plan"), all of which have
been granted to John D. Fruth. These options were granted in 1992 at an exercise
price of $.59 per share, terminate in 1997 and are currently fully vested. The
1992 Plan will be terminated upon the effective date of the Registration
Statement for this offering, when the 1997 Equity Incentive Plan will become
effective. However, termination does not affect these outstanding options, which
will remain outstanding until exercised or until they terminate or expire in
accordance with their terms.
1997 Equity Incentive Plan. In May 1997, the Board adopted and the
stockholders approved the 1997 Equity Incentive Plan (the "1997 Equity Incentive
Plan"), under which 1,000,000 shares of Common Stock are reserved for issuance.
Any authorized shares not issued or subject to outstanding grants under the 1989
Plan on the effective date of this offering ( shares as of March 31, 1997)
and any shares that are issuable upon exercise of options granted pursuant to
the 1989 Plan that expire or become unexercisable for any reason without having
been exercised in full will be available for future grant and issuance under the
1997 Equity Incentive Plan. No options have been issued under the 1997 Equity
Incentive Plan. The 1997 Equity Incentive Plan will become effective on the
effective date of the Registration Statement for this offering and will
terminate in May 2007, unless sooner terminated by the Board. The 1997 Equity
Incentive Plan authorizes the award of options, opportunities to purchase
restricted stock and stock bonuses (each an "Award"). The 1997 Equity Incentive
Plan is administered by a committee appointed by the Board, currently the
Compensation Committee, consisting of Messrs. Cummins, Grant and Tunney, all of
whom are "nonemployee directors" under applicable federal securities laws and
"outside directors" as defined under applicable federal tax laws. The committee
has the authority to construe and interpret the 1997 Equity Incentive Plan and
any agreement made thereunder, grant Awards and establish their terms and make
all other determinations necessary or advisable for the administration of the
1997 Equity Incentive Plan.
The 1997 Equity Incentive Plan provides for the grant of both incentive
stock options ("ISOs") that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, and nonqualified stock options ("NQSOs"). ISOs may be
granted only to employees of the Company or of a parent or subsidiary of the
Company. NQSOs may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or of any parent or
subsidiary of the Company, provided such consultants, independent contractors,
and advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction ("Eligible Service Providers").
The exercise price of ISOs must be at least equal to the fair market value of
the Company's Common Stock on the date of grant. (ISOs issued to ten percent
stockholders must be at least 110% of that value.) The exercise price of NQSOs
must be at least equal to 85% of that value. The maximum term of options granted
under the 1997 Equity Incentive Plan is ten years. Options granted under the
1997 Equity Incentive Plan may not be transferred in any manner other than by
will or by the laws of descent and distribution and may be exercised during the
lifetime of the optionee only by the optionee. Options granted under the 1997
Equity Incentive Plan generally expire 90 days after the termination of the
optionee's service to the Company or to a parent or subsidiary of the Company,
except in the case of death or disability, in which case the options may be
exercised up to 12 months following the date of death or termination of service.
Options terminate immediately upon termination of employment for cause.
Opportunities to purchase shares of the Company's Common Stock ("Restricted
Stock Awards"), and awards of shares of the Company's Common Stock ("Stock
Bonuses"), either of which may be subject to a right of repurchase in favor of
the Company or other restrictions on ownership or transfer, may be given to
Eligible Service Providers.
In the event of certain acquisitions of the Company, any or all outstanding
Awards may be assumed or replaced by the successor corporation. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Award recipients as is provided
to stockholders. If the
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<PAGE> 55
successor does not assume or substitute Awards, outstanding Awards will expire
upon consummation of the transaction, provided that the Board in its sole
discretion may provide that the vesting of any or all Awards will accelerate
prior to such consummation.
1997 Employee Stock Purchase Plan. In May, 1997, the Board adopted and the
stockholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved a total of 200,000 shares of the Company's Common Stock for
issuance thereunder. The Purchase Plan will become effective upon the effective
date of the Registration Statement for this offering and will permit eligible
employees to acquire shares of the Company's Common Stock through payroll
deductions. Eligible employees may select a rate of payroll deduction between 2%
and 10% of their compensation and are subject to certain maximum purchase
limitations described in the Purchase Plan. Except for the first offering, each
offering under the Purchase Plan will be for a period of 24 months (the
"Offering Period") and will consist of four six-month purchase periods (each a
"Purchase Period"). The purchase price for the Company's Common Stock purchased
under the Purchase Plan is 85% of the lesser of the fair market value of the
Company's Common Stock on the first day of the applicable Offering Period and
the last day of the applicable Purchase Period. The Board has the authority to
determine the date on which the first Offering Period will begin and the length
of such Offering Period. The Board has the power to change the duration of
Offering Periods and Purchase Periods. The Purchase Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Code.
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<PAGE> 56
CERTAIN TRANSACTIONS
Since January 1, 1994, there has not been nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any of
its subsidiaries was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer, holder of more than 5% of
the Common Stock of the Company or any member of the immediate family of any of
the foregoing persons had or will have a direct or indirect material interest
other than (i) compensation agreements, which are described where required in
"Management," and (ii) the transactions described below.
OSL ACQUISITION AND RELATED LITIGATION
In September 1992, the Company acquired PLL, a United Kingdom-based
manufacturer of contact lenses and a supplier to the Company, for a total of
864,000 shares of the Company's Common Stock (the "PLL Acquisition"). The owners
of PLL (the "PLL Owners") included John D. Fruth, the Company's President and a
director and principal stockholder of the Company, who received 248,488 shares
of the Company's Common Stock in the acquisition, and Geoffrey Galley and his
son Anthony Galley (together, the "Galleys"), principal stockholders of the
Company, who received 507,512 shares of the Company's Common Stock in the
acquisition.
In connection with the PLL Acquisition, PLL entered into a patent license
agreement with the PLL Owners other than Mr. Fruth (the "Patent Owners"),
pursuant to which PLL obtained a non-exclusive license to certain contact lens
manufacturing patents in exchange for royalty payments that were to aggregate up
to $4.4 million, of which up to $3.6 million was to be paid to the Galleys. An
additional royalty was to be payable by PLL on certain sales by it to other
contact lens manufacturers. Royalties totaling $1.7 million accrued in 1994,
and, as of December 31, 1994, the Company had made cumulative royalty payments
of approximately $3.2 million. No royalty payments were made after 1994 as a
result of the lawsuit described below. Also in connection with the PLL
Acquisition, PLL entered into a purchase and supply agreement with Aspect Vision
Care Ltd. ("AVCL"), a United Kingdom-based contact lens distributor controlled
by certain of the Patent Owners, pursuant to which PLL agreed to manufacture and
supply contact lenses to AVCL at a purchase price equal to the Company's direct
and indirect costs of processing the lenses, plus 20% (the "Purchase and Supply
Agreement"). In connection with the Purchase and Supply Agreement, PLL agreed
not to sell the contact lenses covered by such agreement to third parties in the
United Kingdom and AVCL agreed not to sell such lenses in North and South
America. AVCL accounted for approximately $1.9 million of the Company's net
sales for the year ended December 31, 1994 and $407,000 of accounts receivable
as of December 31, 1995 and 1996. There were no sales to AVCL in 1995 and 1996.
See Note 12 of Notes to Consolidated Financial Statements.
In May 1992, Anthony Galley was appointed Managing Director of PLL and in
November 1992 entered into an employment agreement with PLL, which was
subsequently renamed Ocular Sciences Ltd. ("OSL"). Mr. Galley was also appointed
Vice President, Manufacturing, of the Company. In 1993 - 1994, disputes arose
between the Company, OSL, Anthony Galley and AVCL regarding the type, price and
quantity of contact lenses that OSL was obligated to supply to AVCL under the
Purchase and Supply Agreement. AVCL constructed its own manufacturing facility
in 1994 using information that the Company believed to be proprietary to OSL.
In April 1994, OSL terminated Anthony Galley's employment, and, in the
following month, the Company and OSL sued AVCL, the Galleys, the other Patent
Owners and certain related persons in the United Kingdom and later in
California. The suit in the United Kingdom alleged misappropriation of
intellectual property, breach of fiduciary duty, breach of contract and other
claims, while the suit in California alleged securities fraud arising out of the
PLL Acquisition. The defendants brought a counterclaim against OSL and the
Company for sums allegedly due under the patent license agreement and breach of
Anthony Galley's employment contract, and other claims, and brought a separate
action in the United Kingdom against OSL alleging patent infringement.
In November 1996, judgment was rendered in the United Kingdom actions. The
judgment found against the Company and OSL on the most important claims brought
by them. In the judgment, the judge harshly
55
<PAGE> 57
criticized the Company's business practices and stated that he did not believe
the testimony of Messrs. Fruth and Lichtwardt, the Company's Chief Executive
Officer and Chief Financial Officer, respectively. The judge found in favor of
the defendants on a number of their counterclaims, although not on the issue of
patent infringement, which was decided in favor of OSL.
In February 1997, prior to the determination of any costs or damages, the
Company and the other parties to the foregoing litigations entered into a
settlement agreement (the "Settlement Agreement") providing for, among other
things (i) a mutual release among the parties, including a release from any
further amounts owed under the patent license agreement or Purchase and Supply
Agreement, and the termination of all pending litigation, (ii) the replacement
of the patent license agreement with a new, fully paid-up, non-exclusive patent
license that did not limit OSL's ability to sell contact lenses to other contact
lens manufacturers, (iii) the grant by OSL to AVCL and the Patent Owners of a
royalty-free, non-exclusive license to any OSL proprietary information that was
in their possession as of the commencement of the lawsuits in May 1994, (iv) the
termination of the Purchase and Supply Agreement, including the elimination of
the restriction on the Company's ability to sell contact lenses in the United
Kingdom (with the payment of a limited royalty in certain circumstances) and the
elimination of the restriction on AVCL's ability to sell contact lenses in North
and South America, (v) the placement of the Company's shares owned by the Patent
Owners in a voting trust, which trust is to expire upon the effectiveness of
this offering and (vi) certain priority registration rights for the Patent
Owners in connection with public offerings of the Company, including this
offering. The Settlement Agreement also provided for the payment of $10 million
by the Company, of which $3.3 million (net of withholding) was paid on the date
of the Settlement Agreement and the remaining $6.7 million is to be paid upon
the closing of the Company's initial public offering. See Note 14 of Notes to
Consolidated Financial Statements.
ALLERGAN/HYDRON ACQUISITION; GALEN FINANCING
In October 1992, the Company acquired the North and South American contact
lens business of Allergan Optical, Inc., which had been operating under the name
American Hydron, for $24.5 million. Allergan Optical, Inc. was a wholly-owned
subsidiary of Allergan, Inc. (together referred to as "Allergan"). The American
Hydron acquisition and related working capital requirements were financed by the
issuance of (i) a senior secured note in the amount of $7.0 million to Allergan,
(ii) senior subordinated notes in the aggregate principal amount of $16.3
million, $13.8 million of which was issued to Allergan and $2.5 million of which
was issued to Galen Partners, L.P. and Galen Partners International, L.P.
(together, the "Galen Group"), (iii) 118,168 shares of Series A Preferred Stock
(valued at $8.46 per share, for an aggregate value of approximately $1.0
million) to Allergan, (iv) 1,701,596 shares of Common Stock at $2.94 per share,
for an aggregate price of approximately $5.0 million, to the Galen Group and (v)
warrants to purchase an aggregate of 1,746,344 shares of Common Stock at an
exercise price of $0.0025 per share, 1,478,500 of which were issued to Allergan
and 267,844 of which were issued to the Galen Group. The senior secured note was
repaid from bank borrowings in 1993 and the senior subordinated notes were
repaid from bank borrowings in October 1996. In December 1994, Allergan and the
Galen Group exercised their warrants to purchase 1,233,728 and 178,468 shares of
Common Stock, respectively. Effective December 31, 1996, the remaining warrants
were canceled pursuant to their terms because the Company had met certain
financial milestones.
In connection with the American Hydron acquisition, the Company entered
into a Shareholders' Agreement that provided each of Allergan and the Galen
Group with the right to appoint one person to the Board, which positions are
currently filled by Messrs. Tunney and Grant, respectively. The Shareholders'
Agreement also placed certain restrictions on the ability of the signatories
thereto to transfer their shares. Such rights and restrictions expire on
consummation of an initial public offering as a result of which the public owns
20% of the Company. The Company also entered into a registration rights
agreement providing the Company's then current shareholders, including John D.
Fruth, Allergan, the Galen Group and the Galleys, with certain registration
rights.
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<PAGE> 58
LOANS TO OFFICER
In April 1997, the Company loaned a total of $892,195 to certain employees
of the Company, of which $550,923 was loaned to Bradley S. Jones, the Company's
Vice President, U.S. Sales. All the loans, except for the loan to Mr. Jones, are
non-recourse. The loan to Mr. Jones is a full-recourse promissory note. The
loans are secured by a total of 114,423 shares of the Company's Common Stock,
51,106 of which have been pledged by Mr. Jones. The loans bear interest at a
rate of 6% per annum, payable on or before the earliest of the one year
anniversary of the loan, termination of employment, liquidation or dissolution
of the Company or, under certain circumstances a merger or consolidation of the
Company.
PAYMENTS TO DIRECTOR
Fruth & Anthony, a law firm in which Terence M. Fruth, a director of the
Company and the brother of John D. Fruth, the President of the Company, is a
partner, has provided legal services to the Company since its formation. The
Company made payments of $399,834 in 1994, $309,253 in 1995, $283,945 in 1996
and $29,932 in the first quarter of 1997 to Fruth & Anthony for such legal
services.
LOANS FROM MR. FRUTH
From July 1988 to September 1992, John D. Fruth loaned the Company a total
of $2.9 million to meet certain short-term operating cash requirements. In
October 1992, in connection with the American Hydron acquisition, Mr. Fruth was
issued a junior subordinated promissory note in the principal amount of $2.9
million to evidence the outstanding principal and interest on such loans (the
"Fruth Note"). The Fruth Note bears interest at the prime rate plus 3%. The
Fruth Note was further subordinated in connection with the Company's borrowings
under the Comerica Credit Agreement in October 1996. In May 1997, the Fruth Note
was amended to, among other things, provide that all principal and unpaid
interest is payable on the earlier of November 1, 1997 or the consummation by
the Company of a public offering in which it receives net proceeds of at least
$37.0 million. The Company expects to repay the Fruth Note with a portion of the
proceeds of this offering.
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<PAGE> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of March 31, 1997 and as
adjusted to reflect the sale of the shares of Common Stock offered by
the Company hereby, by: (i) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director of
the Company, (iii) each of the Named Executive Officers, (iv) all directors and
executive officers of the Company as a group, and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
5% STOCKHOLDERS, DIRECTORS AND NAMED EXECUTIVE ------------------- NUMBER OF -------------------
OFFICERS NUMBER PERCENT SHARES BEING OFFERED NUMBER PERCENT
- ---------------------------------------------- ---------- ------- -------------------- --------- -------
<S> <C> <C> <C> <C> <C>
John D. Fruth(2).............................. 4,157,288 46.0%
Galen Partners L.P. and affiliates(3)......... 1,885,569 22.5
610 Fifth Avenue, 5th Floor
New York, NY 10020
Allergan, Inc.(4)............................. 1,391,896 16.6
2525 Dupont Drive
Irvine, CA 92715
Anthony D. Galley(5).......................... 656,240 7.8
Geoffrey H. Galley(6)......................... 612,872 7.3
William R. Grant(7)........................... 1,885,569 22.5
Francis R. Tunney, Jr.(8)..................... 1,391,939 16.6
Edgar J. Cummins.............................. 5,474 *
Daniel J. Kunst(9)............................ 14,943 *
Bradley S. Jones(10).......................... 172,000 2.0
Gregory E. Lichtwardt(11)..................... 48,000 *
John Lilley(12)............................... 4,000 *
All directors and executive officers as a
group
(9 persons)(13)............................. 7,731,745 85.5
OTHER SELLING STOCKHOLDERS
Barrie Bevis.................................. 43,200 *
Albert H. Morland............................. 43,200 *
Ivor Atkinson................................. 21,600 *
</TABLE>
- ---------------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership is based on 8,398,083 shares outstanding as of March
31, 1997 and shares outstanding after the offering. Unless
otherwise indicated below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
will become exercisable with 60 days of March 31, 1997 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 640,000 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1997.
(3) Represents 1,704,592 shares held of record by Galen Partners, L.P., 175,472
shares held of record by Galen Partners International L.P., and 5,505
shares held of record by Galen Associates. William R. Grant, a director of
the Company, is Chairman of Galen Associates, the general partner of Galen
Partners, L.P. Mr. Grant may be deemed to have voting and investment power
with respect to these shares.
(4) Represents 1,391,896 shares held of record by Allergan, Inc. and 93 shares
held of record by Francis R. Tunney, Jr. Mr. Tunney, a director of the
Company, is the General Counsel of Allergan, Inc. Does not include 996,312
shares held of record by Francis R. Tunney, Jr. as trustee of a voting
trust, including the 612,872 shares owned beneficially by Geoffrey H.
Galley and 275,400 shares owned by his son, Anthony D. Galley, because the
voting trust terminates upon the closing of this offering.
(5) Represents 275,440 shares held of record by Anthony D. Galley and 380,800
shares held of record by Geoffrey H. Galley over which Anthony D. Galley
has power of attorney including the right to vote such shares. Anthony D.
Galley's address is Beacon Way, The Hangers, Bishops Waltham, Hampshire
SO32 1FZ, England.
(6) Represents shares of Common Stock held of record by Geoffrey H. Galley.
Does not include 275,440 shares held by Anthony D. Galley, Geoffrey
Galley's son. Geoffrey H. Galley's address is Red Lodge, The Close,
Totteridge, London N20 8PJ, England.
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<PAGE> 60
(7) Represents 1,885,569 shares held of record by affiliated entities of Galen
Partners L.P. See Note (2).
(8) Represents 1,391,896 shares held of record by Allergan, Inc. and 93 shares
held of record by Francis R. Tunney, Jr. See Note (3).
(9) Includes 10,000 shares of Common Stock which may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1997.
(10) Includes 32,000 shares of Common Stock which may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1997.
(11) Represents shares of Common Stock which may be acquired upon exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1997.
(12) Represents shares of Common Stock which may be acquired upon exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of March 31, 1997.
(13 Includes 734,000 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1997.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.001 par value, and
4,000,000 shares of Preferred Stock, par value $.001. As of March 31, 1997, and
assuming the conversion of all outstanding Preferred Stock into Common Stock,
there were outstanding 8,398,083 shares of Common Stock held of record by
approximately 45 stockholders, and options to purchase 1,564,837 shares of
Common Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Amended and Restated
Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part and by the provisions
of applicable law.
COMMON STOCK
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. The Common Stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding at
that time after payment of liquidation preferences, if any, on any outstanding
Preferred Stock and payment of other claims of creditors. Each outstanding share
of Common Stock is, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock (the "Convertible Preferred"), will be converted into shares of Common
Stock. See Note 9 of Notes to Consolidated Financial Statements for a
description of the Convertible Preferred. Pursuant to the Company's Certificate
of Incorporation, the Board is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding), without any further vote or action by the
stockholders. The Board may authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. Thus, the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no current plan to issue any shares of
Preferred Stock.
REGISTRATION RIGHTS
Following this offering, the holders of approximately shares of
Common Stock (the "Registrable Securities") will have certain rights to register
those shares under the Securities Act. The holders of Registrable Securities
have agreed that they will not exercise any right with respect to any such
registrations for a period ending 180 days after the effective date of the
Registration Statement for this offering without the prior written consent of
Morgan Stanley & Co. Incorporated. Thereafter, if requested by the holders of at
least 10% of the Registrable Securities, the Company must file a registration
statement under the Securities Act covering all Registrable Securities requested
to be included by all holders of such Registrable Securities, provided such
offering represents at least 20% of the Registrable Securities then outstanding.
These rights are subject to certain conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares included
in such registration in certain circumstances. The Company may be required to
effect up to three such registrations, plus one additional such registration for
each registration that does not
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<PAGE> 62
include all holders' Registrable Securities requested to be included. All
expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) will be borne by the Company. These
demand registration rights expire October 30, 2002.
In addition, if the Company proposes to register any of its securities
under the Securities Act, whether or not for sale for its own account, other
than in connection with a Company employee benefit plan or a corporate
reorganization, the holders of Registrable Securities are entitled to notice of
such registration and are entitled to include shares of such Common Stock
therein. These rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration in certain circumstances. All expenses incurred in
connection with such registrations (other than underwriters' discounts and
commissions) will be borne by the Company. These registration rights expire
October 30, 2002.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock
is . The Transfer Agent's telephone number is .
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding, for purposes of determining the number of
shares outstanding, those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; or
(iv) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation. In general, Section 203 defines an interested stockholder as
any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling
or controlled by such entity or person. See "Risk Factors -- Certain
Antitakeover Provisions."
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "OCLR."
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<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' overallotment option), as of the
effective date of the Registration Statement of which this Prospectus forms a
part (the "Effective Date"), there will be 8,398,083 shares of Common Stock
outstanding, all of which are "restricted" shares (the "Restricted Shares")
under the Securities Act. Of the Restricted Shares, an aggregate of
shares of Common Stock (including shares issuable upon exercise of
vested stock options) will be eligible for sale in the public market subject to
Rule 144 and Rule 701 under the Securities Act after expiration of a contractual
lock-up beginning 180 days after the date of the Prospectus, unless earlier
released, in whole or in part, by Morgan Stanley & Co. Incorporated. In
addition, an aggregate of shares of Common Stock will become eligible
for resale in the public market upon expiration of a one-year holding period,
subject to certain volume and resale restrictions set forth in Rule 144, in the
quarter of 1998. Sales of a substantial number of Restricted Shares in the
public market following this offering could adversely affect the market price of
the Common Stock and the ability of the Company to raise equity capital in the
future.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after
this offering) or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Unless otherwise restricted, "144(k) shares"
may therefore be sold immediately upon the completion of this offering.
Rule 701 permits resales of shares in reliance upon Rule 144, but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of, or consultant to, the Company
who purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. The
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of this
Prospectus). Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. In both cases,
a holder of Rule 701 shares is required to wait until 90 days after the date of
this Prospectus before selling such shares.
Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock
reserved for issuance under the Company's stock option plans, 1997 Equity
Incentive Plan and Purchase Plan. Shares of Common Stock issued upon exercise of
options under the Form S-8 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to affiliates and subject to
lock-up agreements. At March 31, 1997, options to purchase 1,564,837 shares of
Common Stock were outstanding. Beginning 180 days after the Effective Date,
shares issuable upon the exercise of vested options will be eligible for sale,
if such options are exercised. See "Management -- Director Compensation" and
"Management -- Employee Benefit Plans."
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<PAGE> 64
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated as of the date hereof, the Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and Cowen & Company
are serving as Representatives (the "Representatives"), have severally agreed to
purchase, and the Company and the Selling Stockholders have agreed to sell to
them severally, the respective numbers of shares of Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
--------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated..............................
Bear, Stearns & Co. Inc........................................
Cowen & Company................................................
------
Total................................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by its
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than the shares
covered by the overallotment option described below) if any such shares are
taken.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the initial public offering price. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other
dealers. After the initial offering of the Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to additional shares of Common Stock at the
initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering overallotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered hereby to the
Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, stockholders and option holders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of this
Prospectus without the prior consent of Morgan Stanley & Co. Incorporated. The
Company has agreed in the Underwriting Agreement that it will not, directly or
indirectly, without the prior written consent of Morgan Stanley & Co.
Incorporated, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of any shares of
63
<PAGE> 65
Common Stock or any securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the date of this Prospectus, except under
certain circumstances.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain others who have expressed an interest in purchasing
such shares of Common Stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same basis as other shares offered
hereby.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock
will be determined by negotiations among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in determining the
initial public offering price will be the future prospects of the Company and
its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
the Company. The estimated initial public offering price range set forth on the
cover page of this Preliminary Prospectus is subject to change as a result of
market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain legal
matters will be passed upon for the Underwriters by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996, have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
64
<PAGE> 66
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule filed therewith. Certain
items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedule filed therewith. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, and the exhibits and schedule
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
65
<PAGE> 67
OCULAR SCIENCES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Income................................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 68
When the transactions referred to in Notes 1 and 16 of the Notes to Consolidated
Financial Statements have been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ocular Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Ocular
Sciences, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ocular
Sciences, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
February 14, 1997, except as to Notes 1 and 16,
which are as of June , 1997
San Francisco, California
F-2
<PAGE> 69
OCULAR SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
----------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------- ------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 3,025 $ 3,795 $ 2,939
Restricted cash............................................... 2,321 1,746 439
Accounts receivable, less allowance for sales returns and
doubtful accounts of $1,930, $1,451 and $1,000 for 1995,
1996 and 1997, respectively................................ 11,722 16,022 13,541
Inventories................................................... 12,581 12,956 13,986
Other current assets.......................................... 1,519 1,746 2,463
------- ------- -------
Total Current Assets.................................. 31,168 36,265 33,368
Property and equipment, net................................... 18,192 26,462 27,054
Intangible assets, net........................................ 1,401 683 9,227
Other assets.................................................. 113 93 89
------- ------- -------
Total Assets.......................................... $50,874 $63,503 $69,738
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 4,819 $ 4,006 $ 3,663
Accrued liabilities........................................... 6,868 8,578 8,326
Accrued liabilities to related parties........................ -- -- 6,667
Accrued cooperative merchandise allowances.................... 496 2,194 2,753
Current portion of long-term debt............................. 1,716 4,273 4,754
Current portion of related-party debt......................... 2,868 -- --
Current deferred taxes........................................ 462 1,155 1,138
Income and other taxes payable................................ 2,026 941 968
------- ------- -------
Total Current Liabilities............................. 19,255 21,147 28,269
Long-term debt, less current portion............................ 2,258 15,572 12,884
Long-term related-party debt, less current portion.............. 16,069 2,895 2,895
------- ------- -------
Total Liabilities..................................... 37,582 39,614 44,048
------- ------- -------
Commitments, contingencies and subsequent events
Stockholders' Equity:
Preferred Stock, $0.001 par value; 4,000,000 shares
authorized: 118,168 shares issued and outstanding for 1995,
1996 and 1997; none pro forma.............................. 1 1 1 --
Common Stock, $0.001 par value; 40,000,000 shares authorized;
7,927,432, 8,269,785 and 8,279,915 shares issued and
outstanding for 1995, 1996 and 1997, respectively;
8,398,083 pro forma........................................ 8 8 8 8
Additional paid-in capital.................................... 7,867 8,368 8,405 8,406
Retained earnings............................................. 5,486 15,580 17,382 17,382
Cumulative translation adjustment............................. (70) (68) (106) (106)
------- ------- ------- -------
Total Stockholders' Equity............................ 13,292 23,889 25,690 $ 25,690
------- ------- ------- -------
Total Liabilities and Stockholders' Equity............ $50,874 $63,503 $69,738
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 70
OCULAR SCIENCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $48,503 $68,087 $ 90,509 $17,176 $ 23,879
Cost of sales.............................. 22,553 26,820 36,553 6,891 9,462
------- ------- --------- ------- ---------
Gross profit.......................... 25,950 41,267 53,956 10,285 14,417
Selling and marketing expenses............. 6,405 11,728 18,101 3,723 5,774
General and administrative expenses........ 11,087 14,287 18,420 4,340 5,399
------- ------- --------- ------- ---------
Income from operations................ 8,458 15,252 17,435 2,222 3,244
Interest expense........................... (3,128) (3,024) (3,216) (771) (487)
Interest income............................ 123 280 132 25 37
Other (expense) income, net................ (416) 151 (186) 57 (191)
------- ------- --------- ------- ---------
Income before taxes................... 5,037 12,659 14,165 1,533 2,603
Income taxes............................... -- (3,869) (3,989) (429) (781)
------- ------- --------- ------- ---------
Net income............................ 5,037 8,790 10,176 1,104 1,822
Preferred stock dividends.................. (82) (82) (82) (20) (20)
------- ------- --------- ------- ---------
Net income applicable to common
stockholders........................ $ 4,955 $ 8,708 $ 10,094 $ 1,084 $ 1,802
======= ======= ========= ======= =========
Pro forma net income per share data:
Pro forma net income per share........... $ 1.05 $ 0.19
========= =========
Pro forma weighted average common and
common equivalent shares
outstanding........................... 9,684,591 9,687,283
========= =========
Supplementary pro forma net income per
share................................. $ 1.22 $ 0.21
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 71
OCULAR SCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE TOTAL
---------------- ------------------ PAID-IN (ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY
------- ------ --------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1993........................... 118,168 $1 6,410,556 $7 $7,766 $ (8,177) $ -- $ (403)
Exercise of employee stock
options...................... -- -- 4,160 -- 3 -- -- 3
Conversion of warrants to
common stock................. -- -- 1,452,196 1 3 -- 4
Net income..................... -- -- -- -- -- 5,037 -- 5,037
Preferred stock dividends...... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment................... -- -- -- -- -- -- (112) (112)
-- --
------- -------- ------ ------- ----- -------
Balances as of December 31,
1994........................... 118,168 1 7,866,912 8 7,772 (3,222) (112) 4,447
Exercise of employee stock
options...................... -- -- 42,568 -- 42 -- -- 42
Directors' compensation........ -- -- 17,952 -- 53 -- -- 53
Net income..................... -- -- -- -- -- 8,790 -- 8,790
Preferred stock dividends...... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment................... -- -- -- -- -- -- 42 42
-- --
------- -------- ------ ------- ----- -------
Balances as of December 31,
1995........................... 118,168 1 7,927,432 8 7,867 5,486 (70) 13,292
Exercise of employee stock
options...................... -- -- 339,570 -- 200 -- -- 200
Directors' compensation........ -- -- 2,783 -- 28 -- -- 28
Income tax benefits from stock
options exercised............ -- -- -- -- 273 -- -- 273
Net income..................... -- -- -- -- -- 10,176 -- 10,176
Preferred stock dividends...... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment................... -- -- -- -- -- -- 2 2
-- --
------- -------- ------ ------- ----- -------
Balances as of December 31,
1996........................... 118,168 $1 8,269,785 $8 $8,368 $ 15,580 $ (68) $ 23,889
Exercise of employee stock
options (unaudited).......... -- -- 8,800 -- 15 -- -- 15
Directors' compensation........ -- -- 1,330 -- 22 -- -- 22
Net income (unaudited)......... -- -- -- -- -- 1,822 -- 1,822
Preferred stock dividends
(unaudited).................. -- -- -- -- -- (20) -- (20)
Cumulative translation
adjustment (unaudited)....... -- -- -- -- -- -- (38) (38)
-- --
------- -------- ------ ------- ----- -------
Balances as of March 31, 1997
(unaudited).................... 118,168 $1 8,279,915 $8 $8,405 $ 17,382 $(106) $ 25,690
======= == ======== == ====== ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 72
OCULAR SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $5,037 $ 8,790 $ 10,176 $ 1,104 $ 1,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,137 2,578 4,904 975 1,674
Allowances for sales returns and doubtful
accounts..................................... 813 311 193 160 237
Provision for excess inventory................. 240 475 1,153 158 289
(Gain)/loss on sale of property and
equipment.................................... 114 28 (35) -- --
Exchange loss (gain)........................... 48 37 (49) 13 214
Deferred income taxes.......................... (656) 1,353 932 -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (837) (5,942) (4,339) 1,527 2,157
Inventories.................................... 2,395 (3,005) (1,259) (1,273) (1,460)
Income and other taxes payable................. 428 1,333 (1,024) (520) 30
Other current and non-current assets........... 324 (1,115) (164) (500) (760)
Accounts payable............................... (994) 2,759 (973) (1,650) (287)
Accrued liabilities............................ 924 1,915 3,183 615 820
------- ------- ------- ------- -------
Net cash provided by operating
activities.............................. 9,973 9,517 12,698 609 4,736
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (2,153) (13,558) (12,256) (4,191) (2,041)
Purchase of marketing rights and license
agreement...................................... -- -- -- -- (2,499)
Proceeds from liquidation of property and
equipment...................................... 60 7 55 -- --
(Deposits to)/payments from restricted cash....... -- (2,321) 730 780 1,228
------- ------- ------- ------- -------
Net cash used in investing activities..... (2,093) (15,872) (11,471) (3,411) (3,312)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... 95 1,637 19,343 2,009 2,878
Repayment of long-term debt....................... (2,134) (1,702) (19,805) (461) (5,101)
Preferred stock dividends......................... -- (247) (82) (21) (21)
Proceeds from issuance of common stock............ 7 95 228 192 37
------- ------- ------- ------- -------
Net cash (used in) provided by financing
activities.............................. (2,032) (217) (316) 1,719 (2,207)
------- ------- ------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... 17 (42) (141) 56 (73)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 5,865 (6,614) 770 (1,027) (856)
Cash and cash equivalents at beginning of year...... 3,774 9,639 3,025 3,025 3,795
------- ------- ------- ------- -------
Cash and cash equivalents at end of year............ $9,639 $ 3,025 $ 3,795 $ 1,998 $ 2,939
======= ======= ======= ======= =======
Supplemental cash flow disclosures:
Cash paid (received) during the year for:
Interest....................................... $3,284 $ 3,021 $ 3,561 $ 733 $ 465
Income taxes................................... $ (490) $ 1,188 $ 3,393 $ 946 $ 671
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 73
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
NOTE 1. NATURE OF BUSINESS
FORMATION AND BUSINESS OF THE COMPANY
O.S.I. Corporation was incorporated in California in 1985. The Company is
engaged in the design, manufacture and distribution of contact lenses and
conducts business under the name of Ocular Sciences/American Hydron.
On May 12, 1997, the Company's Board of Directors approved a
reincorporation into the state of Delaware that became effective ,
1997 following approval by the Company's stockholders. The Board of Directors
also approved a change in the Company's name to Ocular Sciences, Inc. (the
"Company") and authorized the filing of a registration statement with the
Securities and Exchange Commission permitting the Company to sell shares of its
common stock in a proposed initial public offering. In connection with the
reincorporation, the stockholders of the Company approved a stock
split and increased its authorized common stock to . All applicable
share and per share amounts in the accompanying consolidated financial
statements have been retroactively adjusted to reflect the reincorporation and
the stock split.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Ocular Sciences Ltd. ("OSL")
(formerly Precision Lens Laboratories Ltd.), O.S.I. Puerto Rico Corporation,
O.S.I. Canada Corporation and Ocular Sciences Hungary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period.
Cash and Cash Equivalents
The Company considers all highly liquid cash investments, primarily
consisting of money market funds, with an original maturity of three months or
less to be cash equivalents.
Restricted Cash
Restricted cash consists of cash held in an escrow account for payment of
various commitments of the Company's United Kingdom subsidiary. The largest
component of restricted cash as of December 31, 1995 and 1996 related to
royalties due under a molding patent license for which the Company was in
litigation with the patent owners. The royalties related to liabilities that
were recorded and charged to expense in 1994 and 1995. The Company settled the
litigation with the patent holders in February 1997 (see Notes 12 and 14). The
restricted cash balance as of March 31, 1997 related to cash held in escrow for
the construction and rent of the Company's United Kingdom facility.
F-7
<PAGE> 74
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Inventories
Inventories are recorded at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable factory overhead.
Provision for potentially obsolete or slow moving inventory is made based upon
management's analysis of inventory levels and forecasted sales.
Revenue Recognition
The Company recognizes sales upon shipment of products to its customers.
Allowances for sales returns are accrued at the time sales are recognized.
Cooperative Merchandise Allowances
The Company offers a cooperative merchandise program to certain of its
customers whereby the Company reimburses these customers for items such as
advertising, displays and mailings that are intended to encourage the fitting
and wearing of the Company's disposable lenses. The Company records the
provisions for cooperative merchandising at the time of sale to the customers
and as a component of selling and marketing expense.
Foreign Currencies
During the quarter ended December 31, 1994, the functional currencies of
the Company's United Kingdom and Canadian subsidiaries were changed from the
U.S. dollar to the respective local currencies, reflecting the fact that the
local currencies are the currencies in which the subsidiaries primarily generate
and expend cash.
As a result of this change, the subsidiaries translate all asset and
liability accounts at current exchange rates in effect at the balance sheet date
and statement of income accounts at average exchange rates during the period.
Translation adjustments arising from differences in exchange rates from period
to period are included in the financial statements as a separate component of
stockholders' equity.
Concentration of Credit Risk
The Company sells its products to a diverse group of ophthalmologists,
optometrists, optical retailers and optical product distributors, and therefore
the concentration of credit risk with respect to receivables is limited due to
the large number and diversity of customers across broad geographic areas.
Accounts receivable from customers are uncollateralized. As of December 31,
1995, approximately 11% of accounts receivable and 8% of consolidated net sales
were concentrated in one customer, while, as of December 31, 1996, approximately
22% of accounts receivable and 12% of consolidated net sales were concentrated
in two customers and, as of March 31, 1997, approximately 11% of accounts
receivable and 5% of consolidated net sales were concentrated in one customer.
To reduce credit risk, the Company performs ongoing credit evaluations of its
significant customers' respective financial conditions. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the respective estimated useful lives of the assets,
which range from three to ten years. Leasehold improvements are amortized over
the shorter of the respective lease terms or the respective estimated useful
lives of the assets.
F-8
<PAGE> 75
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Long-Lived Assets, Including Intangible Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," as of January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of SFAS No. 121 did not have
an impact on the Company's consolidated financial position, results of
operations or liquidity.
Marketing rights, trademarks, licenses, and covenants not to compete are
carried at cost less accumulated amortization, which is calculated on a
straight-line basis over the estimated useful lives of the respective assets,
which are typically five to ten years. Goodwill, which represents the excess of
purchase price over fair value of the tangible and intangible assets acquired,
is amortized on a straight-line basis over five years.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.
Stock-Based Compensation
The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," and has elected to continue to account for
stock-based compensation using methods prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations.
The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional paid-in capital.
The Company realizes an income tax benefit from the exercise and early
disposition of certain stock options and the exercise of other stock options.
The benefit results in a decrease in current income taxes payable and an
increase in common stock.
Reclassifications
Certain reclassifications were made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.
Unaudited Interim Consolidated Financial Information
The unaudited interim consolidated financial information as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 has been prepared on
the same basis as the audited consolidated financial statements. In the opinion
of management, such unaudited information includes all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of this
interim information. Operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1997.
F-9
<PAGE> 76
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
Unaudited Pro Forma Stockholders' Equity
The unaudited pro forma stockholders' equity section assumes the conversion
of all outstanding shares of Series A preferred stock into 118,168 shares of the
Company's common stock upon the closing of the Company's anticipated initial
public offering.
Pro Forma Net Income Per Share
Pro forma net income per share is computed based on the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares include convertible preferred shares and the
conversion of stock options using the treasury stock method. The conversion of
the shares of Series A Preferred Stock into 118,168 shares of common stock is
included in the pro forma computation for all periods presented. In accordance
with Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, pro forma net income per share includes all common and common equivalent
shares granted or issued within 12 months of the offering date as if they were
outstanding for all periods presented, even if antidilutive, using the treasury
stock method and the anticipated initial public offering price. Historical net
income per share has not been presented since such amounts are not deemed
meaningful due to the change in the Company's capital structure that will occur
in connection with the Company's anticipated initial public offering.
Supplementary Net Income Per Share
Supplementary net income per share is computed as if the March 31, 1997
debt balances outstanding of $14,487,000 under the Company's Credit Agreement
and $2,895,000 under a long-term subordinated note payable due to a stockholder
had been paid at the beginning of the period or the date of issuance, if later,
resulting in the elimination of $2,741,000 and $443,000 in interest expense for
the year ended December 31, 1996 and the three months ended March 31, 1997,
respectively.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which will be effective for financial statements for
periods ending after December 15, 1997, including interim periods, and
establishes standards for computing and presenting earnings per share. Earlier
application is not permitted. In its consolidated financial statements for the
year ending December 31, 1997, the Company will make the required disclosures of
basic and diluted earnings per share and provide a reconciliation of the
numerator and denominator of its basic and diluted earnings per share
computations. All prior period earnings per share data will be restated by the
Company upon adoption of SFAS 128. The Company expects that basic earnings per
share of the Company will be greater than primary earnings per share and diluted
earnings per share will be substantially similar to the pro forma net income per
share disclosed herein.
NOTE 3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Raw materials................................. $ 1,950 $ 1,845 $ 2,088
Work in process............................... 950 1,535 1,128
Finished goods................................ 9,681 9,576 10,770
------- ------- -------
$12,581 $12,956 $13,986
======= ======= =======
</TABLE>
F-10
<PAGE> 77
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment net, consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Equipment and machinery.............................. $ 9,940 $18,247 $ 20,849
Furniture and fixtures............................... 817 1,870 2,118
Vehicles............................................. 297 297 254
Building and leasehold improvements.................. 3,006 8,911 8,974
Construction in progress............................. 10,013 6,668 5,781
------- ------- --------
24,073 35,993 37,976
Less accumulated depreciation and amortization....... (5,881) (9,531) (10,922)
------- ------- --------
$18,192 $26,462 $ 27,054
======= ======= ========
</TABLE>
NOTE 5. INTANGIBLE ASSETS, NET
Intangible assets, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Marketing rights, trademarks, licenses and covenants
not to compete...................................... $ 1,483 $ 1,475 $10,271
Goodwill.............................................. 2,094 2,094 2,094
------- ------- -------
3,577 3,569 12,365
Less accumulated amortization......................... (2,176) (2,886) (3,138)
------- ------- -------
$ 1,401 $ 683 $ 9,227
======= ======= =======
</TABLE>
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Revolving line of credit to a bank, due October 31,
1999, bearing interest at the bank's Eurodollar rate
plus 2.75%.......................................... $ -- $ 7,474 $ 5,487
Term loan to a bank, principal payments due quarterly
from January 31, 1997 through October 31, 1998,
bearing interest at the bank's Eurodollar rate plus
2.75%............................................... -- 10,000 9,000
Senior note payable to a bank, due serially until June
1997, bearing interest at prime plus 3/4%.......... 2,250 -- --
Note payable to Banco Bilbao Vizcaya Puerto Rico, due
the earlier of December 1997 or upon closing of
permanent financing, bearing interest at the bank's
rate plus 2%........................................ 834 1,069 1,933
Capital lease obligations, bearing an effective
interest rate of 8.763%, 10.5% and 10.5%,
respectively, for 1995, 1996 and 1997, secured by
certain equipment................................... 778 1,248 1,181
Other................................................. 112 54 37
------- ------- -------
Total long-term debt........................ 3,974 19,845 17,638
Less current portion of long-term debt................ (1,716) (4,273) (4,754)
------- ------- -------
$ 2,258 $15,572 $12,884
======= ======= =======
</TABLE>
F-11
<PAGE> 78
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
On October 30, 1996, the Company executed a commercial lending facility
(the "Agreement") with a major commercial bank. The Agreement provides for a
term loan and a revolving line of credit, the proceeds of which were used to
retire the Company's pre-existing line of credit.
The revolving line of credit is available up to the lesser of $17,000,000
or 80% of the Company's eligible accounts receivable plus 50% of the Company's
net inventory, inclusive of an amount of up to $3,000,000 for letters of credit.
The outstanding balance of this line of credit is due in full on October 31,
1999. However, the Company may elect to prepay the principal due under the
revolving line of credit, or the term loan, for a 2% fee on the prepayment
amount if prepaid by October 31, 1997 or a 1% fee thereafter, provided that only
the prepayments under the line of credit may be reborrowed.
The term loan in the amount of $10,000,000 is payable in eight quarterly
installments beginning January 31, 1997, $1,000,000 each quarter in 1997 and
$1,500,000 each quarter in 1998. In addition to the foregoing payments, the term
loan must be repaid with cash proceeds, if applicable, from the Company's sale
of its assets, issuance of its equity (less all placement fees and underwriting
expenses) or subordinated debt, and other extraordinary receipts from litigation
settlement, key man life insurance or tax refunds.
The Agreement provides the Company with two interest rate
options -- interest at 0.25% to 0.75% above the bank's base rate or at 2.25% to
2.75% above the rate at which deposits in eurodollars are offered to the bank by
other prime banks in the eurodollar market, with the percentages varying based
on certain leverage ratios. The effective interest rates on the Agreement as of
December 31, 1996 and March 31, 1997 were 8.125% and 8.4375%, respectively. The
Company pays commitment fees of 0.375% on the unused amount of the revolving
line of credit. There are no commitment fees on the term loan. As of December
31, 1996 and March 31, 1997, the uncommitted line of credit under the Agreement
was $9,400,000 and $11,500,000, respectively, with no amounts outstanding under
the letters of credit. The Agreement is secured by the Company's accounts
receivable, inventory, equipment, loans and notes receivable, and general
intangibles provided that the collateral must not include more than 65% of any
class of equity securities of any foreign subsidiary. The Company is also
required under the Agreement to maintain minimum debt to tangible net worth,
interest coverage and tangible net worth ratios, and the Agreement places
certain limitations on debt, liens, contingent obligations, investments and cash
dividends on common stock. The Company was in compliance with all covenants
associated with the Agreement as of December 31, 1996 and March 31, 1997.
In late 1995, the Company entered into a bank line of credit under which up
to $3,500,000 was available for borrowings through September 30, 1996. The
Company's accounts receivable, inventory and equipment located in the United
States were pledged as collateral under the agreement. The interest rate for
this facility was fixed at the bank's reference rate plus 0.75% (9.25% at
December 31, 1995). The agreement contained a commitment fee of 0.5% per annum
on the unused portion of the line of credit and also contained restrictive
financial covenants that required maintenance of certain financial ratios and
limited the total amount of fixed or capital purchases. As of December 31, 1995,
no amounts were outstanding on this credit line, which was terminated on October
30, 1996.
The Company has guaranteed the borrowings of its Puerto Rican subsidiary
under a loan agreement with Banco Bilbao Vizcaya Puerto Rico ("BBV") for the
financing of the construction of an industrial building at Santa Isabel
Industrial Park, Santa Isabel, Puerto Rico, and for purchase of machinery and
equipment not to exceed the total sum of $5,800,000. The loan is secured by a
chattel mortgage upon all machinery and equipment purchased with any part of the
loan proceeds and for the full amount of the loan plus interest and other sums
due to the bank. The principal amount of this loan is payable in December 1997
or upon the closing of a permanent financing loan from the Government
Development Bank of Puerto Rico ("GDB"). The Company has secured the commitment
for permanent financing. The BBV loan bears interest at 2% over the lender's
defined cost of funds or, in the event that such funds are not available, 1.5%
over the lender's
F-12
<PAGE> 79
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
prime lending rate. The effective interest rates as of December 31, 1995 and
1996 and March 31, 1997 were 10%, 8% and 9%, respectively. The BBV loan
agreement also contains a commission fee equal to 1% of the principal and
drawing fees equal to 0.5% of the loan amount. As of December 31, 1995 and 1996
and March 31, 1997, the loan amount outstanding on this agreement was $834,000,
$1,069,000 and $1,933,000, respectively.
The long-term debt, including current portion, is due in aggregate annual
installments of $4,273,000, $6,257,000, $7,974,000, $381,000 and $960,000 in
each of the years from 1997 through 2001 and thereafter.
NOTE 7. OPERATING LEASES
The Company leases its offices and warehouse facilities under noncancelable
operating leases. The future minimum lease payments on these noncancelable
operating leases with an initial term in excess of one year as of December 31,
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------
<S> <C>
1997....................................................... $ 2,314
1998....................................................... 2,168
1999....................................................... 2,100
2000....................................................... 1,348
2001....................................................... 1,310
Thereafter................................................. 4,767
-------
$14,007
=======
</TABLE>
Rent expense on operating leases was approximately $711,000, $918,000 and
$1,643,000 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $383,000 and $437,000, for the three months ended March 31, 1996 and 1997,
respectively.
NOTE 8. STOCK SPLIT
On February 21, 1995, the stockholders of the Company approved a
four-for-one split of the Company's common and preferred stock.
NOTE 9. PREFERRED STOCK AND ACCRUED DIVIDENDS
Each share of preferred stock is convertible into common stock, at the
option of the holder, at any time, on a one-for-one basis, subject to adjustment
for dilution. Each share of preferred stock will automatically convert into
shares of common stock in the event of (1) the closing of an underwritten public
offering, a sale of substantially all of the assets of the Company, or a
consolidation or merger of the Company in which the stockholders prior to the
event do not represent a majority of the outstanding shares after the event or
(2) upon the written consent of a majority of the total number of outstanding
shares of Series A preferred stock. The shares of preferred stock may be
redeemed, at the Company's election, at a redemption price of 110% of their
original purchase price plus accrued dividends.
Except as required by law, the Series A preferred stock is non-voting. When
Series A preferred stock is entitled to vote as a matter of law, the shares of
Series A preferred stock will have a number of votes equal to the number of
shares of common stock into which they could then be converted.
F-13
<PAGE> 80
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
The holders of Series A preferred stock are entitled to cumulative annual
dividends of 8.25% per annum, prior and in preference to the payment of any
dividends on the common stock (other than a common stock dividend). Such
dividends are cumulative from November 1, 1992 and accrue day to day until paid,
whether or not earned or declared. The cumulative dividends are to be paid by
the Company in cash, in quarterly installments in arrears on April 30, July 31,
October 31 and January 31 of each year ("payment dates"). Cumulative dividends
of $13,737 were outstanding as of December 31, 1995, 1996 and March 31, 1997 and
are included in accrued liabilities. Holders of Series A preferred stock, as
their sole and exclusive remedy, may elect, at their option upon written notice
to the Company, to receive shares of common stock in lieu of cash dividends
accrued if the Company fails to pay accrued dividends for eight consecutive
payment dates. Cumulative dividends accrued through October 31, 1994 were paid
to holders of Series A preferred stock in January 1995 and scheduled quarterly
dividend payments were made thereafter.
In the event of liquidation, holders of Series A preferred stock are
entitled to receive an amount equal to the original purchase price of their
shares of preferred stock plus all accrued and unpaid dividends.
NOTE 10. COMMON STOCK
Warrants
As of December 31, 1995, warrants were outstanding that entitled the
warrant holders to purchase up to 294,148 shares of common stock for $0.0025 per
share, subject to adjustment for dilution. The warrants expire on the earlier of
October 30, 2002 or the date of effectiveness of a registration statement
covering at least 35% of the common stock then outstanding. The number of shares
subject to the warrants are reduced if the Company meets certain financial
performance goals and the Company prepays the subordinated notes payable to
stockholders prior to October 30, 1996. The Company repaid this note on October
30, 1996 (see Note 6 and 12). The warrants were issued on October 30, 1992 in
connection with the acquisition of the contact lens business in North and South
America of Allergan, Inc. In accordance with the original terms of the warrant
agreement, all outstanding warrants were cancelled effective December 31, 1996,
as a result of the Company achieving certain financial results and prepaying
certain subordinated notes payable.
Stock Option Plans
The Company has two stock-based compensation plans that are described
below. In 1996, the Company adopted the provisions of SFAS No. 123 and elected
to continue to account for stock-based compensation using the methods prescribed
in APB No. 25. Accordingly, no compensation expenses have been recognized for
its fixed stock option plans in 1994, 1995 and 1996. Had compensation expenses
for the stock option plans been determined consistent with SFAS No. 123, the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------ THREE MONTHS ENDED
1995 1996 MARCH 31, 1997
------ ------- --------------------
<S> <C> <C> <C>
Net income
As reported......................... $8,790 $10,176 $1,822
Pro forma........................... $8,632 $ 9,787 $1,715
Net income per share
As reported......................... -- 1.05 0.19
Pro forma........................... -- 1.01 0.18
</TABLE>
F-14
<PAGE> 81
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
The initial effect of applying the SFAS No. 123 disclosure requirement may
not be representative of the effects on reported net income for future years.
The Company's 1989 stock option plan provides for the grant to employees,
directors or consultants of incentive stock options, exercisable at a price not
less than the fair market value of the shares on the grant date, or for
nonqualified options, exercisable at a price not less than 85% of the fair
market value of the shares on the grant date. The options generally are granted
for a six year term and vest over a five-year period. During 1994, the
stockholders approved an amendment to the Company's incentive stock option plan
increasing the number of shares reserved for issuance under that plan by 469,032
to 1,469,032. The fair value of each option grant is estimated on the grant date
by calculating the difference between the current market value of the Company's
common stock and the present value of the exercise price using a risk-free
interest rate of 6.65% over the expected life of five years. The per share
weighted average fair value of options granted during the years ended December
31, 1994, 1995, 1996 and three months ended March 31, 1997 were $.07597,
$1.4872, $3.0083 and $4.5634, respectively.
A summary of stock option transactions under this plan follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF NUMBER OF EXERCISE
EXERCISE PRICES SHARES PRICE
------------------- --------- --------
<S> <C> <C> <C>
Outstanding as of December 31, 1993............... $0.534 to $2.9375 512,240 $ 0.7174
Exercised....................................... 0.534 (4,160) 0.5340
Granted......................................... 2.9375 666,600 2.9375
Canceled........................................ 0.534 to 2.9375 (96,040) 2.3694
----------------- --------- -------
Outstanding as of December 31, 1994............... $0.534 to $2.9375 1,078,640 $ 2.0036
Exercised....................................... 0.534 to 2.9375 (42,568) 1.0073
Granted......................................... 2.9375 to 6.07 196,060 5.7505
Canceled........................................ 0.534 to 6.07 (121,547) 2.8723
----------------- --------- -------
Outstanding as of December 31, 1995............... $0.534 to $6.07 1,110,585 $ 2.6081
Exercised....................................... 0.534 to 6.07 (339,570) 0.5987
Granted......................................... 10.06 to 14.71 197,767 11.6318
Canceled........................................ 0.534 to 14.71 (66,630) 4.9679
----------------- --------- -------
Outstanding as of December 31, 1996............... $0.534 to $14.71 902,152 $ 5.1684
Exercised....................................... 0.534 to 6.07 (8,800) 1.7910
Granted......................................... 16.17 35,675 16.1700
Canceled........................................ 2.93 to 16.17 (4,190) 7.3041
----------------- --------- -------
Outstanding as of March 31, 1997.................. $0.534 to $16.17 924,837 $ 5.6050
================= ========= =======
</TABLE>
The total number of shares exercisable as of December 31, 1996 was 301,283,
at exercise prices ranging from $0.534 to $10.06 and, as of March 31, 1997 was
336,578, at exercise prices ranging from $0.534 to $16.17. As of December 31,
1994, 1995 and 1996 and March 31, 1997, there were available for grant under the
plan 366,872, 292,359, 161,222 and 129,737 shares, respectively.
In 1992, the Company adopted a stock option plan for officers and
directors, which provides for the grant of incentive stock options exercisable
at a price not less than the fair market value of the shares on the grant date
or nonqualified stock options exercisable at a price not less than 85% of the
fair market value of the shares on the grant date. A total of 640,000 shares of
common stock are reserved for issuance under this plan. As of December 31, 1996,
an option to purchase the 640,000 shares of common stock reserved under this
plan had
F-15
<PAGE> 82
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
been granted to the Company's president. The option is fully vested and can be
exercised at $0.5873 per share, subject to adjustment (see Note 12).
NOTE 11. INCOME TAXES
Deferred taxes are provided, where warranted, to reflect the future tax
consequences of differences between the financial reporting and tax reporting of
various assets and liabilities; these differences will be either taxable or
deductible when the related assets and liabilities are recovered or settled. The
income tax benefits related to the exercise of stock options reduces taxes
currently payable and is credited to common stock. Such amounts approximated
$273,000 for 1996.
Income tax expense (benefit) for the years ended December 31, 1994, 1995
and 1996, consisted of (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ -------------------------- -------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal...... $ -- $ (374) $(374) $ 764 $1,311 $ 2,075 $ 1,963 $ (648) $1,315
State........ 1 -- 1 611 254 865 627 389 1,016
Foreign...... 655 (282) 373 1,141 (212) 929 706 952 1,658
---- ----- ----- ------ ------ ------ ------ ----- ------
$ 656 $ (656) $ -- $ 2,516 $1,353 $ 3,869 $ 3,296 $ 693 $3,989
==== ===== ===== ====== ====== ====== ====== ===== ======
</TABLE>
The total income tax expense (benefit) differed from the amount computed by
applying the federal statutory income tax rate of 34% to income before taxes as
a result of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax expense at federal statutory rate
of 34%........................................ $ 1,713 $ 4,304 $ 4,816
Foreign tax rate differential................... (21) (33) (4)
Puerto Rico possessions tax credit.............. (255) (429) (1,135)
State taxes..................................... 181 510 367
Amortization of goodwill........................ 168 168 168
Other permanent differences..................... 98 529 (223)
Net change in deferred tax asset valuation
allowance..................................... (1,884) (1,180) --
------- ------- -------
$ -- $ 3,869 $ 3,989
======= ======= =======
</TABLE>
The Company has used the profit split method to calculate taxable income
since January 1, 1995. Prior to that date, the Company used the cost plus
method.
F-16
<PAGE> 83
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Accrual of royalties deductible when paid...................... $ 276 $ 425
Net operating loss carryforwards............................... -- --
Deferred compensation and interest............................. 131 295
Accounts receivable, principally due to allowance for doubtful
accounts.................................................... 319 660
Inventories, principally due to reserves and additional costs
capitalized for tax purposes................................ 899 1,189
State taxes.................................................... 124 236
Other accrued liabilities...................................... 1,141 576
Total gross deferred tax assets........................ 2,890 3,381
------- -------
Less valuation allowance....................................... -- --
Gross deferred tax assets, net of valuation allowance....... 2,890 3,381
Deferred tax liabilities:
Investment in subsidiaries..................................... (461) (461)
Puerto Rico tollgate tax....................................... -- (818)
Other basic differences........................................ (2,652) (2,358)
Depreciation of property and equipment......................... (239) (899)
Total gross deferred tax liabilities................... (3,352) (4,536)
------- -------
Net deferred tax asset (liability)..................... $ (462) $(1,155)
======= =======
</TABLE>
For financial reporting purposes, a valuation allowance was recognized as
of December 31, 1994, to reflect the uncertainty of generating taxable income
sufficient to utilize the gross deferred tax asset.
NOTE 12. RELATED PARTY TRANSACTIONS
On September 30, 1992, the Company entered into a non-exclusive patent
license agreement, which granted the Company the right to manufacture, use and
sell products and processes covered by patents and patent applications owned by
certain former stockholders of OSL, some of whom are stockholders of the
Company. The agreement required the Company to pay royalties to the former OSL
stockholders of $0.50 per lens, with a minimum $1,000,000 per royalty year (from
July 1 to June 30) commencing in 1993, until $4,400,000 in total royalties has
been paid on a cumulative basis. Royalty payments totaling $1,650,000 were made
in 1994, and as of December 31, 1994, the Company made cumulative royalty
payments of approximately $3,200,000. Royalty payments of $1,200,000 were
deposited into an escrow account pending settlement of litigation against
certain stockholders of the Company (see Note 14).
Also, on September 30, 1992, the Company entered into a purchase and supply
agreement with Aspect Vision Care Ltd. ("AVCL"), an entity affiliated with
certain stockholders of the Company. The agreement provided that the Company
would sell lenses to AVCL at a purchase price equal to the Company's direct and
indirect costs of processing the lenses, plus 20%. As discussed in Note 14, AVCL
and the Company were involved in litigation which was settled in February 1997.
AVCL accounted for net sales of approximately $1,863,000 for the year ended
December 31, 1994 and $407,000 of accounts receivable as of December 31, 1995
and 1996. There were no sales to AVCL in 1995 or 1996. A provision was recorded
for the full amount of
F-17
<PAGE> 84
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
the accounts receivable from AVCL as of December 31, 1995, which was
subsequently written off during the three months ended March 31, 1997.
During 1993 and 1994 certain individuals who held a controlling interest in
AVCL also served as members of the board of directors of the Company's United
Kingdom subsidiary (OSL).
On September 30, 1992, the Company entered into consulting agreements with
two stockholders that called for an aggregate of approximately $7,000 per month
to be paid for consulting services rendered. These agreements were terminated in
February 1997 (see Note 14).
As of December 31, 1995, the Company had approximately $16,042,000 in
subordinated notes, net of debt discount, of which $2,868,000 represented the
current portion. The Company also had accrued interest of $481,000 due to the
Company's warrant holders and certain stockholders. This debt agreement
contained certain restrictive financial covenants requiring the Company to
maintain certain levels of tangible net worth and cash, to maintain specified
ratios (debt to net worth and quick ratio) and to achieve certain levels of
interest expense coverage. The debt was retired on October 30, 1996 (see Note
6).
As of December 31, 1995 and 1996 and March 31, 1997, the Company had a
$2,895,000 long-term junior subordinated note payable due to the Company's
president bearing interest at prime plus 3% (11.5%, 11.25% and 11.5% as of
December 31, 1995, December 31, 1996 and March 31, 1997, respectively). An
agreement was signed by the president on October 30, 1996 that provided for
subordination of this junior subordinated note to debt outstanding to a major
commercial bank (see Note 6). The president also signed an amendment to the
original note on November 1, 1996, subject to the provisions of the
subordination agreement, whereby all principal and unpaid interest is payable to
him on November 1, 1997. The president had advanced the Company funds
periodically, prior to 1993, to meet certain short-term operating cash
requirements. Accrued interest on this debt totaled $56,000 as of December 31,
1995 and $54,000 as of December 31, 1996 and March 31, 1997. The president has
the right to exercise stock options held by reducing the principal balance owed
on the note payable in lieu of providing cash payments upon exercise. The
president holds options to purchase 640,000 shares of common stock with an
exercise price of $0.5873 per share, subject to adjustment.
A director of the Company, who is also the brother of the President, is a
partner in a law firm which has provided legal services to the Company since its
formation. The Company made payments for legal services of $400,000, $309,000
$284,000 and $26,000 and $30,000 in the years ended December 31, 1994, 1995 and
1996 and the three months ended March 31, 1996 and 1997.
F-18
<PAGE> 85
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
NOTE 13. FOREIGN OPERATIONS
The Company operates in a single industry segment and has several wholly
owned subsidiaries that manufacture the Company's products in the United
Kingdom, Canada and Puerto Rico. The Company's operations by geographic area for
1994, 1995 and 1996 and for the three months ended March 31, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1994
Sales to unaffiliated customers... $ 45,212 $ 3,291 $ -- $ 48,503
Intercompany sales................ 20,838 9,342 (30,180) --
-------- ------- -------- -------
Total net sales................... $ 66,050 $12,633 $(30,180) $ 48,503
======== ======= ======== =======
Income from operations............ $ 5,692 $ 1,094 $ 1,672 $ 8,458
======== ======= ======== =======
Net assets........................ $ 7,416 $ 2,509 $ (5,478) $ 4,447
======== ======= ======== =======
December 31, 1995
Sales to unaffiliated customers... $ 64,377 $ 3,710 $ -- $ 68,087
Intercompany sales................ 25,059 13,291 (38,350) --
-------- ------- -------- -------
Total net sales................... $ 89,436 $17,001 $(38,350) $ 68,087
======== ======= ======== =======
Income from operations............ $ 14,929 $ 1,724 $ (1,401) $ 15,252
======== ======= ======== =======
Net assets........................ $ 12,623 $10,459 $ (9,790) $ 13,292
======== ======= ======== =======
December 31, 1996
Sales to unaffiliated customers... $ 84,009 $ 6,500 $ -- $ 90,509
Intercompany sales................ 29,702 20,345 (50,047) --
-------- ------- -------- -------
Total net sales................... $113,711 $26,845 $(50,047) $ 90,509
======== ======= ======== =======
Income from operations............ $ 16,587 $ 1,523 $ (675) $ 17,435
======== ======= ======== =======
Net assets........................ $ 29,729 $15,340 $(21,180) $ 23,889
======== ======= ======== =======
Three Months Ended March 31, 1997
Sales to unaffiliated customers... $ 21,802 $ 2,077 $ -- $ 23,879
Intercompany sales................ 7,562 4,656 (12,218) --
-------- ------- -------- -------
Total net sales................... $ 29,364 $ 6,733 $(12,218) $ 23,879
======== ======= ======== =======
Income from operations............ $ 2,801 $ (361) $ 804 $ 3,244
======== ======= ======== =======
Net assets........................ $ 30,769 $15,674 $(20,753) $ 25,690
======== ======= ======== =======
</TABLE>
NOTE 14. LITIGATION
In 1994, litigation was commenced by the Company and OSL, its United
Kingdom subsidiary, against former employees and a former director of OSL, its
United Kingdom distributor (AVCL) and certain related parties. The claims by the
Company were essentially for misappropriation of intellectual property, breach
of contract and nonpayment of accounts. In a related matter, there was also a
patent infringement action against OSL which involved the validity of a certain
molding patent that was licensed by OSL from certain of the defendants. The
Company also brought an action in federal court in California against certain of
the same individuals who were sued in the United Kingdom. The California action
was essentially one for breach of employment, breach of contract and violation
of securities laws.
F-19
<PAGE> 86
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
In November 1996, judgment was rendered in the United Kingdom actions. In
February 1997, prior to the determination of any costs or damages by the United
Kingdom courts, the parties to the above litigations entered into a settlement
agreement for total monetary consideration of $10,000,000. The settlement
agreement provided for, among other things, (i) a mutual release and termination
of all pending litigation; (ii) the replacement of the September 30, 1992 patent
license agreement (See Note 12) with a new, fully paid-up, non-exclusive, patent
license, that did not contain any restrictions on the Company's ability to sell
contact lenses to other contact lens manufacturers; and, (iii) the termination
of the Company's obligation to supply contact lenses under the September 30,
1992 purchase and supply agreement (See Note 12), including a limitation of the
Company to sell contact lenses directly into the United Kingdom. The Company
paid $3,333,000 to the defendants upon consummation of the settlement agreement
and agreed to pay an additional $6,667,000 upon the earlier of February 27, 1998
or the sale of the Company's common stock in an initial public offering. The
Company has the option of paying a portion of this remaining amount in common
stock at a designated fixed value.
The Company engaged a third party valuation firm to value the intangible
assets acquired as a result of the settlement agreement and assigned values to
the liabilities identified as a result of the court judgment. The Company then
allocated the $10,000,000 of consideration to the liabilities identified and the
intangible assets acquired on a pro rata basis. As a result of this allocation
and in accordance with APB Opinion No. 17, "Intangible Assets," the Company
allocated $8,800,000 of the consideration to the intangible assets acquired. The
Company has assigned an estimated useful life of 10 years to these intangible
assets.
The Company incurred legal expenses, which were included in general and
administrative expenses, in 1994, 1995, 1996 and the three months ended March
31, 1996 and 1997 of $549,000, $1,320,000, $2,513,000, $162,000 and $50,000,
respectively, related to this litigation.
Various other legal actions arising in the normal course of business have
been brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of the these actions will not have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 15. OTHER COMMITMENTS
Commitments for the remodeling of existing facilities and purchase of
capital equipment over the next year are approximately $2,849,000 and
$5,908,000, respectively, as of December 31, 1996 and March 31, 1997.
NOTE 16. SUBSEQUENT EVENTS
Compensation Plans
In May 1997, the Board of Directors and the stockholders of the Company
adopted the following compensation plans:
The 1997 Equity Incentive Plan provides for grants of incentive stock
options to employees (including officers and employee directors) and
nonqualified stock options to employees, officers, directors, consultants,
independent contractors and advisors of the Company. The exercise price of
all incentive stock options must be equal to the fair market value of the
Company's common stock on the date of grant. The exercise price of all
nonqualified stock options must be at least equal to 85% of that value. A
total of 1,000,000 shares of common stock are reserved for future issuances
under the plan.
The 1997 Directors Stock Option Plan provides for grants of
nonqualified stock options to certain non-employee directors of the
Company. The exercise price per share of all options granted under the
F-20
<PAGE> 87
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
plan must be equal to the fair market value of the Company's common stock
on the date of grant. A total of 150,000 shares of common stock are
reserved for future issuances under the plan.
The 1997 Employee Stock Purchase Plan will be implemented by an
offering commencing on the date of the closing of the proposed initial
public offering. The plan permits employees to purchase common stock at a
price equal to 85% of the fair market value of the Company's common stock.
A total of 200,000 shares of common stock are reserved for future issuances
under the plan.
Financing
Effective upon the closing of a public offering of the Company's common
stock, the Company intends to amend and restate the commercial lending facility
(the "Revised Agreement") and has received a commitment from its bank for a
modification to the Revised Agreement under which the Company could borrow up to
$20 million in revolving credit loans. Outstanding borrowings under the Revised
Agreement are expected to fluctuate based on investment levels in working
capital and property and equipment. The Company expects that the Revised
Agreement will terminate on June 30, 2000, and would be secured by a pledge of
the Company's stock in its subsidiaries and the Company's inventory and accounts
receivable. Borrowings under the Revised Agreement would bear interest at
Comerica's prime rate or at Comerica's eurodollar rate plus a specified margin
that varies based on the Company's ratio of debt to tangible net worth.
Loans to Officer
In April 1997, the Company loaned a total of $892,195 to certain employees
of the Company, of which $550,923 is a full-recourse promissory note loaned to
the Company's Vice President, U.S. Sales. All the loans, except for the loan to
this officer, are non-recourse but are secured by a total of 114,423 shares of
the Company's Common Stock, 51,106 of which have been pledged by the officer.
The loans bear interest at a rate of 6%, payable on or before the earliest to
occur of the one year anniversary of each loan, respectively, termination of
employment, liquidation or dissolution of the Company or, under certain
circumstances, merger or consolidation of the Company.
F-21
<PAGE> 88
------------------------
[LOGO]
------------------------
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $24,394
NASD Filing Fee.................................................... 8,550
Nasdaq National Market Application Fee............................. *
Printing........................................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Director and Officer Liability Insurance........................... *
Blue Sky Fees and Expenses......................................... *
Custodial Fees..................................................... *
Transfer Agent and Registrar Fees.................................. *
Miscellaneous...................................................... *
-------
Total.................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law Code authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article VI of the Registrant's Bylaws provides for mandatory
indemnifications of its directors and officers and permissible indemnifications
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, the Registrant has entered into Indemnity
Agreements with its officers and directors. Reference is also made to Section 9
of the Underwriting Agreement, which provides for the indemnification of
officers, directors and controlling persons of the Registrant against certain
liabilities.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities arising under the Securities
Act.
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Registrant's Board of Directors, has applied for, and expects to obtain,
directors' and officers' liability insurance with a per claim and annual
aggregate coverage limit of $ .
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
--------------------------------------------------------------- --------------
<S> <C>
Underwriting Agreement (draft dated May , 1997).............. 1.01
Registrant's Bylaws............................................ 3.04
Form of Indemnity Agreement.................................... 10.06
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding all securities sold by
the Registrant since May 1, 1994.
II-1
<PAGE> 90
<TABLE>
<CAPTION>
NUMBER AGGREGATE FORM OF
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES OF SHARES PURCHASE PRICE CONSIDERATION
- -------------------------------- ------------ ------------------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Exercise of options by 31 05/94-
optionees....................... 04/30/97 Common Stock 404,178 $ 273,837.79 Cash
Edgar J. Cummins, William R.
Grant(2), Daniel J. Kunst and
Terence M. Fruth................ 11/30/94 Common Stock 13,464 39,550.50 Services as
director
Allergan, Inc., Galen Partners,
L.P., .......................... 12/14/94 and
Galen Partners International
L.P. ........................... 12/22/94 Common Stock 1,089,147 3,630.49 Cash
Edgar J. Cummins, William R.
Grant(2), Daniel J. Kunst,
Terence M. Fruth and Richard M.
Haugen(3)....................... 01/10/96 Common Stock 2,783 27,996.98 Services as
director
</TABLE>
- ---------------
(2) Stock certificate issued to Galen Associates.
(3) Stock certificate issued to Richard M. Haugen and Mary J. Haugen as trustees
of the Haugen Family Trust.
All sales of Common Stock made pursuant to the exercise of stock options
granted under the Registrant's stock option plan and issuances to directors and
independent contractors were made pursuant to the exemption from the
registration requirements of the Securities Act afforded by Rule 701 promulgated
under the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment who represented to the Registrant that the shares were being acquired
for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
1.01 -- Underwriting Agreement.*
2.01 -- Form of Agreement and Plan of Merger by and between O.S.I. Corporation, a
California corporation, and Registrant.
3.01 -- Registrant's Certificate of Incorporation.
3.02 -- Registrant's Certificate of Designation of Preferred Stock.
3.03 -- Form of Registrant's Restated Certificate of Incorporation to be effective upon
the closing of this offering.
3.04 -- Registrant's Bylaws.
4.01 -- Registration Rights Agreement dated as of October 30, 1992 by and among the
Registrant and the other parties listed on the signature pages thereto.
4.02 -- Amendment to Registration Rights Agreement and Shareholders' Agreement dated as of
February 27, 1997 by and among the Registrant and the other parties listed on the
signature pages thereto.
5.01 -- Opinion of Fenwick & West LLP regarding legality of the securities being issued.*
10.01 -- Registrant's 1989 Stock Option Plan adopted July 21, 1989, as amended November 30,
1994.
10.02 -- Registrant's 1992 Officers and Directors Stock Option Plan adopted September 30,
1992.
10.03 -- Registrant's 1997 Equity Incentive Plan.
</TABLE>
II-2
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
10.04 -- Registrant's 1997 Directors Stock Option Plan.
10.05 -- Registrant's 1997 Employee Stock Purchase Plan.
10.06 -- Form of Indemnity Agreement to be entered into by Registrant with each of its
directors and executive officers.
10.07 -- Junior Subordinated Promissory Note dated October 30, 1996, issued by O.S.I.
Corporation to John Fruth, as amended.*
10.08 -- Settlement Agreement and Release dated as of February 27, 1997 between Aspect
Vision Care Ltd., New Focus Health Care Ltd., Geoffrey Galley, Anthony Galley,
Barrie Bevis, Albert Morland, Ivor Atkinson, Wilfred Booker, Ocular Sciences Ltd.,
O.S.I. Corporation and John Fruth, as amended February 27, 1997 between the
parties to the Settlement Agreement and Contact Lens Technologies Ltd.*
10.09 -- Amendment to Settlement Agreement and Release dated as of February 27, 1997
between the parties to the Settlement Agreement and Contact Lens Technologies
Ltd.*
10.10 -- Patent License Agreement dated February 27, 1997 by and between Ocular Sciences
Ltd. and certain persons referred to therein as the Patent Owners.
10.11 -- Employment Agreement dated March 27, 1996 by between John Lilley and O.S.I.
Corporation.
10.12 -- Lease for 475 - 479 Eccles Avenue dated May 18, 1995, between Stanley D. McDonald,
Norman H. Scherdt, Herbert A. West and McDonald Ltd. as "Landlord" and O.S.I.
Corporation as "Tenant."
10.13 -- Lease for Santa Isabel, Puerto Rico Kingdom dated September 14, 1984, between The
Puerto Rico Industrial Development Company as "Landlord" and O.S.I. Puerto Rico
Corporation as "Tenant," as amended.
10.14 -- Counterpart Underlease of Distribution Depot dated November 30, 1995 among Boots
the Chemist Limited as "Landlord," Ocular Sciences Limited as "Tenant" and O.S.I.
Corporation as "Guarantor."
11.01 -- Statement regarding computation of pro forma and supplementary pro forma net
income per share.
21.01 -- List of Subsidiaries.
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants.*
24.01 -- Power of Attorney (included on Page II-5 of this Registration Statement).
27.01 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
II-3
<PAGE> 92
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for sales returns and 1,930 193 -- (672)(1) 1,451
doubtful accounts
receivable....................
Provision for excess and obsolete 2,341 983 -- (1,082)(2) 2,242
inventory.....................
YEAR ENDED DECEMBER 31, 1995
Allowance for sales returns and 2,011 468 -- (548)(1) 1,930
doubtful accounts
receivable....................
Provision for excess and obsolete 4,554 575 -- (2,798)(2) 2,341
inventory.....................
YEAR ENDED DECEMBER 31, 1994
Allowance for sales returns and 1,465 950 -- (404)(1) 2,011
doubtful accounts
receivable....................
Provision for excess and obsolete 11,892 256 -- (7,594)(2) 4,554
inventory.....................
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Discontinued and expired inventory.
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the Consolidated Financial
Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of South San Francisco,
State of California, on the 19th day of May 1997.
OCULAR SCIENCES, INC.
By: /s/ JOHN D. FRUTH
------------------------------------
John D. Fruth
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John D. Fruth and Gregory E. Lichtwardt,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462 promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- --------------------------------- -------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ JOHN D. FRUTH President and Chief Executive May 19, 1997
- --------------------------------------------- Officer and Chairman of the Board
John D. Fruth of Directors
PRINCIPAL FINANCIAL AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ GREGORY E. LICHTWARDT Vice President, Finance and Chief May 19, 1997
- --------------------------------------------- Financial Officer
Gregory E. Lichtwardt
DIRECTORS:
/s/ EDGAR J. CUMMINS Director May 19, 1997
- ---------------------------------------------
Edgar J. Cummins
/s/ TERENCE M. FRUTH Director May 19, 1997
- ---------------------------------------------
Terence M. Fruth
/s/ WILLIAM R. GRANT Director May 19, 1997
- ---------------------------------------------
William R. Grant
/s/ DANIEL J. KUNST Director May 19, 1997
- ---------------------------------------------
Daniel J. Kunst
/s/ FRANCIS R. TUNNEY, JR. Director May 19, 1997
- ---------------------------------------------
Francis R. Tunney, Jr.
</TABLE>
II-5
<PAGE> 94
When the transactions referred to in Notes 1 and 16 of the Notes to Consolidated
Financial Statements have been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ocular Sciences, Inc.
Under date of February 14, 1997, except as to Notes 1 and 16, which are as of
June , 1997, we reported on the consolidated balance sheets of Ocular
Sciences, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of income, stockholders equity, and cash flows for each of the years
in the three-year period ended December 31, 1996, which are included in the
prospectus. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
February 14, 1997, except as to Notes 1 and 16,
which are as of June , 1997
San Francisco, California
II-6
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------ -------------------------------------------------------------------------- -----
<C> <C> <S> <C>
1.01 -- Underwriting Agreement*...................................................
2.01 -- Form of Agreement and Plan of Merger by and between O.S.I. Corporation, a
California corporation, and Registrant....................................
3.01 -- Registrant's Certificate of Incorporation.................................
3.02 -- Registrant's Certificate of Designation of Preferred Stock................
3.03 -- Form of Registrant's Restated Certificate of Incorporation to be effective
upon the closing of this offering.........................................
3.04 -- Registrant's Bylaws.......................................................
4.01 -- Registration Rights Agreement dated as of October 30, 1992 by and among
the Registrant and the other parties listed on the signature pages
thereto...................................................................
4.02 -- Amendment to Registration Rights Agreement and Shareholders' Agreement
dated as of February 27, 1997 by and among the Registrant and the other
parties listed on the signature pages thereto.............................
5.01 -- Opinion of Fenwick & West LLP regarding legality of the securities being
issued....................................................................
10.01 -- Registrant's 1989 Stock Option Plan adopted July 21, 1989, as amended
November 30, 1994.........................................................
10.02 -- Registrant's 1992 Officers and Directors Stock Option Plan adopted
September 30, 1992........................................................
10.03 -- Registrant's 1997 Equity Incentive Plan...................................
10.04 -- Registrant's 1997 Directors Stock Option Plan.............................
10.05 -- Registrant's 1997 Employee Stock Purchase Plan............................
10.06 -- Form of Indemnity Agreement to be entered into by Registrant with each of
its directors and executive officers......................................
10.07 -- Junior Subordinated Promissory Note dated October 30, 1996, issued by
O.S.I. Corporation to John Fruth, as amended*.............................
10.08 -- Settlement Agreement and Release dated as of February 27, 1997 between
Aspect Vision Care Ltd., New Focus Health Care Ltd., Geoffrey Galley,
Anthony Galley, Barrie Bevis, Albert Morland, Ivor Atkinson, Wilfred
Booker, Ocular Sciences Ltd., O.S.I. Corporation and John Fruth, as
amended February 27, 1997 between the parties to the Settlement Agreement
and Contact Lens Technologies Ltd.*.......................................
10.09 -- Amendment to Settlement Agreement and Release dated as of February 27,
1997 between the parties to the Settlement Agreement and Contact Lens
Technologies Ltd.*........................................................
10.10 -- Patent License Agreement dated February 27, 1997 by and between Ocular
Sciences Ltd. and certain persons referred to therein as the Patent
Owners....................................................................
10.11 -- Employment Agreement dated March 27, 1996 by between John Lilley and
O.S.I. Corporation........................................................
10.12 -- Lease for 475 - 479 Eccles Avenue dated May 18, 1995, between Stanley D.
McDonald, Norman H. Scherdt, Herbert A. West and McDonald Ltd. as
"Landlord" and O.S.I. Corporation as "Tenant".............................
10.13 -- Lease for Santa Isabel, Puerto Rico Kingdom dated September 14, 1984,
between The Puerto Rico Industrial Development Company as "Landlord" and
O.S.I. Puerto Rico Corporation as "Tenant," as amended....................
10.14 -- Counterpart Underlease of Distribution Depot dated November 30, 1995 among
Boots the Chemist Limited as "Landlord," Ocular Sciences Limited as
"Tenant" and O.S.I. Corporation as "Guarantor"............................
11.01 -- Statement regarding computation of pro forma and supplementary pro forma
net income per share......................................................
21.01 -- List of Subsidiaries......................................................
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01)*.................
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants*..............................................................
24.01 -- Power of Attorney (included on Page II-5 of this Registration
Statement)................................................................
27.01 -- Financial Data Schedule...................................................
</TABLE>
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* To be supplied by amendment.
<PAGE> 1
EXHIBIT 2.01
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is
made as of May __, 1997 by and between O.S.I. Corporation, a California
corporation ("O.S.I. California"), and Ocular Sciences, Inc., a Delaware
corporation ("O.S.I. Delaware"). O.S.I. California and O.S.I. Delaware are
hereinafter sometimes collectively referred to as the "Constituent
Corporations."
R E C I T A L S
A. O.S.I. California was incorporated on December 23, 1985.
Its current authorized capital stock consists of: (1) 40,000,000 shares of
Common Stock, no par value ("O.S.I. California Common Stock"), of which
approximately 8,279,915 shares are issued and outstanding; and (2) 4,000,000
shares of Preferred Stock, no par value ("O.S.I. California Preferred Stock"),
of which 118,168 shares are issued and outstanding (consisting of 118,168 shares
of Series A Preferred Stock).
B. O.S.I. Delaware was incorporated on May __, 1997. Its
authorized capital stock consists of: (1) 40,000,000 shares of Common Stock,
with a par value of $0.001 per share ("O.S.I. Delaware Common Stock"), of which
1,000 shares are issued and outstanding; and (2) 4,118,168 shares of Preferred
Stock, $0.001 par value ("O.S.I. Delaware Preferred Stock"), none of which
shares are issued and outstanding.
C. The respective Boards of Directors of O.S.I. California and
O.S.I. Delaware deem it advisable and to the advantage of each of the
Constituent Corporations that O.S.I. California merge with and into O.S.I.
Delaware upon the terms and subject to the conditions set forth in this Merger
Agreement for the purpose of effecting a change of the state of incorporation of
O.S.I. California from California to Delaware.
D. The Boards of Directors of each of the Constituent
Corporations have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of
reorganization set forth in this Merger Agreement and do hereby agree that
O.S.I. California shall merge with and into O.S.I. Delaware on the following
terms, conditions and other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as
defined below), O.S.I. California shall be merged with and into O.S.I. Delaware
(the "Merger"), and O.S.I. Delaware shall be the surviving corporation of the
Merger (the "Surviving Corporation"). The Merger shall become effective upon the
close of business on the date when a duly executed copy of this Merger
Agreement, along with all required officers' certificates, is filed with the
Secretary of State of the State of California, or upon the close of business on
the date when a duly executed copy of this Merger Agreement, along with all
required officers' certificates, is filed with the Secretary of State of the
State of Delaware, whichever later occurs (the "Effective Time").
<PAGE> 2
2. EFFECT OF MERGER. At the Effective Time, the separate
corporate existence of O.S.I. California shall cease; the corporate identity,
existence, powers, rights and immunities of O.S.I. Delaware as the Surviving
Corporation shall continue unimpaired by the Merger; and O.S.I. Delaware shall
succeed to and shall possess all the assets, properties, rights, privileges,
powers, franchises, immunities and purposes, and be subject to all the debts,
liabilities, obligations, restrictions and duties of O.S.I. California, all
without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, the Certificate
of Incorporation of O.S.I. Delaware in effect immediately prior to the Effective
Time shall become the Certificate of Incorporation of the Surviving Corporation
and the Bylaws of O.S.I. Delaware in effect immediately prior to the Effective
Time shall become the Bylaws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. At the Effective Time, the
directors and officers of O.S.I. Delaware shall be and become the directors and
officers (holding the same titles and positions) of the Surviving Corporation
and after the Effective Time shall serve in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
5. CONVERSION OF SHARES OF O.S.I. CALIFORNIA. Subject to the
terms and conditions of this Agreement, at the Effective Time, (i) each share of
O.S.I. California Common Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of O.S.I. Delaware Common Stock, and (ii) each
share of O.S.I. California Series A Preferred Stock outstanding immediately
prior thereto shall be automatically changed and converted into one fully paid
and nonassessable, issued and outstanding share of O.S.I. Delaware Series A
Preferred Stock.
6. CANCELLATION OF SHARES OF O.S.I. DELAWARE. At the Effective
Time, all of the previously issued and outstanding shares of O.S.I. Delaware
Common Stock that were issued and outstanding immediately prior to the Effective
Time shall be automatically retired and canceled.
7. STOCK CERTIFICATES. At and after the Effective Time, all of
the outstanding certificates that, prior to that date, represented shares of
O.S.I. California Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of O.S.I. Delaware Common
Stock into which such shares of O.S.I. California Common Stock are converted as
provided herein. At and after the Effective Time, all of the outstanding
certificates that, prior to that date, represented shares of a series of O.S.I.
California Preferred Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of the series of O.S.I.
Delaware Preferred Stock into which such shares of O.S.I. California Preferred
Stock are converted as provided herein. The registered owner on the books and
records of O.S.I. California of any such outstanding stock certificate for
O.S.I. California Common Stock or O.S.I. California Preferred Stock shall, until
such certificate shall have been surrendered for transfer or otherwise accounted
for to O.S.I. Delaware or its transfer agent, be entitled to exercise any voting
and other rights with respect to, and to receive any dividend and other
distributions upon, the shares of O.S.I. Delaware Common
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<PAGE> 3
Stock or O.S.I. Delaware Preferred Stock evidenced by such outstanding
certificate as above provided.
8. CONVERSION OF OPTIONS AND WARRANTS. At the Effective Time,
all outstanding and unexercised portions of all options to purchase a share of
O.S.I. California Common Stock under the O.S.I. California 1989 Stock Option
Plan and all outstanding and unexercised portions of all options to purchase a
share of O.S.I. California Common Stock under the O.S.I. California 1992
Officers and Directors Stock Option Plan shall become options to purchase a
share of O.S.I. Delaware Common Stock at the same exercise price per share and
shall, to the extent permitted by law and otherwise reasonably practicable, have
the same term, exercisability, vesting schedule, status as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), if applicable, and all other material terms and conditions (including
but not limited to the terms and conditions applicable to such options by virtue
of each of the O.S.I. California 1989 Stock Option Plan and the O.S.I.
California 1992 Officers and Directors Stock Option Plan). Continuous employment
with O.S.I. California will be credited to an optionee for purposes of
determining the vesting of the number of shares of O.S.I. Delaware Common Stock
under a converted O.S.I. California option at the Effective Time. Additionally,
at the Effective Time, O.S.I. Delaware shall adopt and assume each of the O.S.I.
California 1989 Stock Option Plan and the O.S.I. California 1992 Officers and
Directors Stock Option Plan. At the Effective Time, any outstanding and
unexercised portions of all warrants to purchase or acquire O.S.I. California
Common Stock shall become warrants to purchase or acquire, on the same terms and
conditions, the same number of shares of O.S.I. Delaware Common Stock.
9. FRACTIONAL SHARES. No fractional shares of O.S.I. Delaware
Common Stock or Preferred Stock will be issued in connection with the Merger. In
lieu thereof, O.S.I. Delaware shall pay each shareholder of O.S.I. California
who would otherwise be entitled to receive a fractional share of O.S.I. Delaware
Common Stock or Preferred Stock (assuming the aggregation of all shares held by
the same holder of more than one stock certificate representing shares of O.S.I.
California Common Stock or Preferred Stock, as the case may be) a cash amount
equal to the applicable fraction multiplied by the fair market value of a share
of O.S.I. Delaware Common Stock or Preferred Stock, as the case may be, as
determined by the Board of Directors of O.S.I. Delaware in good faith (the "Fair
Market Value Per Share"). Upon exercise of each assumed option of O.S.I.
California to purchase O.S.I. Delaware Common Stock, cash will be paid by O.S.I.
Delaware in lieu of any fractional share of O.S.I. Delaware Common Stock,
respectively, issuable upon exercise of such option, and the amount of cash
received for such fractional share shall be the Fair Market Value Per Share upon
exercise thereof multiplied by the applicable fraction, less the unpaid exercise
price per share for such fraction.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the
obligations of O.S.I. California under or with respect to every plan, trust,
program and benefit then in effect or administered by O.S.I. California for the
benefit of the directors, officers and employees of O.S.I. California or any of
its subsidiaries shall become the lawful obligations of O.S.I. Delaware and
shall be implemented and administered in the same manner and without
interruption until the same are
-3-
<PAGE> 4
amended or otherwise lawfully altered or terminated. Effective at the Effective
Time, O.S.I. Delaware hereby expressly adopts and assumes all obligations of
O.S.I. California under such employee benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when
required by the Surviving Corporation or by its successors or assigns, there
shall be executed and delivered on behalf of O.S.I. California such deeds,
assignments and other instruments, and there shall be taken or caused to be
taken by it all such further action as shall be appropriate, advisable or
necessary in order to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation the title to and possession of all property, interests,
assets, rights, privileges, immunities, powers, franchises and authority of
O.S.I. California, and otherwise to carry out the purposes of this Merger
Agreement. The officers and directors of the Surviving Corporation are fully
authorized in the name of and on behalf of O.S.I. California, or otherwise, to
take any and all such actions and to execute and deliver any and all such deeds
and other instruments as may be necessary or appropriate to accomplish the
foregoing.
12. CONDITION. The consummation of the Merger is subject to
the approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of O.S.I. California and by the sole stockholder of O.S.I.
Delaware, prior to or at the Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this
Merger Agreement may be terminated and the Merger abandoned by the Board of
Directors of O.S.I. California or O.S.I. Delaware, notwithstanding approval of
this Merger Agreement by the Boards of Directors and shareholders of O.S.I.
California and O.S.I. Delaware.
14. AMENDMENT. At any time before the Effective Time, this
Merger Agreement may be amended, modified or supplemented by the Boards of
Directors of the Constituent Corporations, notwithstanding approval of this
Merger Agreement by the shareholders of O.S.I. California and O.S.I. Delaware;
provided, however, that any amendment made subsequent to the adoption of this
Agreement by the shareholders of O.S.I. California or the sole stockholder of
O.S.I. Delaware shall not: (i) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or upon
conversion of any shares of any class or series of O.S.I. California; (ii) alter
or change any of the terms of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger; or (iii) alter or change any of the
terms or conditions of this Merger Agreement, if any such alteration or change
would adversely affect the holders of any shares of any class or series of
O.S.I. California or O.S.I. Delaware.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a
tax-free plan of reorganization within the meaning of Section 368(a)(1)(F) of
the Code.
16. GOVERNING LAW. This Agreement shall be governed by and
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to the principles of conflicts of law or
choice of laws, except to the extent that the laws of the State of Delaware
would apply in matters relating to the internal affairs of O.S.I. Delaware and
the Merger.
-4-
<PAGE> 5
17. COUNTERPARTS. In order to facilitate the filing and
recording of this Merger Agreement, it may be executed in any number of
counterparts, each of which shall be deemed to be an original.
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<PAGE> 6
IN WITNESS WHEREOF, this Merger Agreement is hereby executed
on behalf of each of the Constituent Corporations and attested by their
respective officers hereunto duly authorized.
O.S.I. CORPORATION, OCULAR SCIENCES, INC.,
a California corporation a Delaware corporation
By: By:
John D. Fruth John D. Fruth
President and Chief Executive Officer President and Chief Executive
Officer
ATTEST: ATTEST:
By: By:
Terence M. Fruth Terence M. Fruth
Secretary Secretary
[Signature Page to Agreement and Plan of Merger]
-6-
<PAGE> 1
EXHIBIT 3.01
CERTIFICATE OF INCORPORATION
OF
OCULAR SCIENCES, INC.
ARTICLE I
The name of the corporation is Ocular Sciences, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle.
The name of its registered agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. Authorization of Shares
The total number of shares of all classes of stock which the corporation
has authority to issue is forty four million one hundred eighteen thousand one
hundred sixty eight (44,118,168) shares, consisting of two classes: forty
million (40,000,000) shares of Common Stock, $0.001 par value per share, and
four million one hundred eighteen thousand one hundred sixty eight (4,118,168)
shares of Preferred Stock, $0.001 par value per share.
B. Designation of Future Series of Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
certificate of designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof and to increase or decrease the number of shares of any such series (but
not below the number of shares of such series then outstanding). Subject to
approval by the Board of Directors, the number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the corporation entitled to vote, unless
<PAGE> 2
Ocular Sciences, Inc.
Certificate of Incorporation
a vote of any other holders is required pursuant to a certificate or
certificates establishing a series of Preferred Stock.
Except as expressly provided in any certificate of designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock
so provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement of
any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
-2-
<PAGE> 3
Ocular Sciences, Inc.
Certificate of Incorporation
ARTICLE VIII
Effective immediately after the closing of an underwritten public
offering of shares of the corporation's Common Stock pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission, actions shall be taken by the corporation's stockholders only at
annual or special meetings of stockholders, and the corporation's stockholders
shall not be able to act by written consent.
-3-
<PAGE> 4
Ocular Sciences, Inc.
Certificate of Incorporation
ARTICLE IX
The name and mailing address of the incorporator is Barry J. Kramer, c/o
Fenwick & West, Two Palo Alto Square, Suite 700, Palo Alto, California 94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Dated: May 8, 1997
/s/ BARRY J. KRAMER
--------------------------------
Barry J. Kramer, Incorporator
-4-
<PAGE> 1
EXHIBIT 3.02
OCULAR SCIENCES, INC.
CERTIFICATE OF DESIGNATION OF
PREFERRED STOCK
Ocular Sciences, Inc., a Delaware corporation (the "Company") does hereby
certify that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the Delaware General Corporation Law, the Company's Board of Directors
has duly adopted the following resolution creating a separate series of
Preferred Stock designated as Series A Preferred Stock.
RESOLVED, that the Company hereby designates and creates a separate
series of the authorized Preferred Stock, designated Series A Preferred
Stock, as follows:
A. Of the four million one hundred eighteen thousand one hundred sixty
eight (4,118,168) shares of Preferred Stock, par value $0.001, authorized to be
issues by the Company, one hundred eighteen thousand one hundred sixty eight
(118,168) shares are hereby designated a "Series A Preferred Stock". Any shares
of Series A Preferred Stock that are acquired by the Company, whether by
redemption, purchase, conversion or otherwise, so that such shares are issued
but not outstanding, may not be reissued as shares of any such series or as
shares of the class of Preferred Stock. Upon the retirement of any such shares
and the filing of a certificate of retirement pursuant to Sections 103 and 243
of the Delaware General Corporation Law with respect thereto, the shares of such
series shall be eliminated and the number of shares of Preferred Stock shall be
reduced accordingly. The rights, preferences, privileges and restrictions
granted to and imposed upon the respective classes and series of the
Corporation's capital stock are set forth below in Article B. Nothing in this
Article A shall limit the Board of Directors' ability to designate and establish
the rights, preferences, privileges and restrictions of the remaining authorized
but unissued Preferred Stock of the Corporation.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, restrictions and other matters relating to the Series A Preferred
Stock are as follows:
1. DEFINITIONS. For purposes of this Article B, the following
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Company" shall mean this corporation.
1.3 "Common Stock" shall mean the Common Stock, $0.001 par value
of the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared
and paid on the Common Stock that is payable in shares of Common Stock.
1.5 "Dividend Rate" shall mean $0.6975 per share per annum for
the Series A Preferred Stock.
<PAGE> 2
1.6 "Original Issue Date" shall mean the date on which the first
share of Series A Preferred Stock is issued by the Company.
1.7 "Original Issue Price" shall mean $8.4625 per share for the
Series A Preferred Stock.
1.8 "Permitted Repurchases" shall mean the repurchase by the
Company of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Company or a subsidiary that are subject to restricted stock
purchase agreements or stock option exercise agreements under which the Company
has the option to repurchase such shares: (i) at cost, upon the occurrence of
certain events, such as the termination of employment or services; or (ii) at
any price pursuant to the Company's exercise of a right of first refusal to
repurchase such shares.
1.9 "Preferred Stock" shall mean the Preferred Stock, $0.001 par
value, of the Company, including, without limitation, the Series A Preferred
Stock and any series of Preferred Stock created by the Board pursuant to Article
IV of the Company's Certificate of Incorporation.
1.10 "Series A Preferred Stock" shall mean the Series A
Preferred Stock, $0.001 par value, of the Company.
1.11 "Subsidiary" shall mean any corporation of which at least
fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Company or by one or more of such subsidiary
corporations.
2. DIVIDEND RIGHTS.
2.1 Series A Preferred Stock. Subject to the payment of
dividends on senior series of Preferred Stock which may be created by the Board
pursuant to Article IV of the Company's Certificate of Incorporation, the
holders of the then outstanding Series A Preferred Stock shall be entitled to
receive, out of any funds and assets of the Company legally available therefor,
cumulative dividends at the annual Dividend Rate for the Series A Preferred
Stock, prior and in preference to the payment of any dividend on the Common
Stock (other than a Common Stock Dividend). Such dividends shall accrue on each
share of Series A Preferred Stock from the date on which such share of Series A
Preferred Stock is issued by the Company, and shall accrue from day to day until
paid, whether or not earned or declared. No accumulation of dividends on the
Series A Preferred Stock shall bear any interest. Unless the full amount of any
accrued and unpaid cumulative dividends accrued on the Series A Preferred Stock
shall have been paid or declared in full and a sum sufficient for the payment
thereof reserved and set apart, no dividend (other than a Common Stock Dividend)
shall be paid or declared on any Common Stock. The dividend rights of the Series
A Preferred Stock shall not be participating, and accordingly the holders of
Series A Preferred Stock shall not be entitled to any dividends except as
expressly set forth in this Section 2.
2.2 Payment of Cumulative Dividends. Subject to the payment of
dividends on senior series of Preferred Stock which may be created by the Board
pursuant to Article IV of the Company's Certificate of Incorporation, the
cumulative dividends that accrue on the Series A
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<PAGE> 3
Preferred Stock shall be paid by the Company in cash to the holders of then
outstanding shares of Series A Preferred Stock in four equal quarterly
installments in arrears on April 30, July 31, October 31, and January 31 of each
year ("Payment Dates") commencing on January 31, 1993.
2.3 Failure to Pay Dividends. If the Company fails to pay
accrued dividends on the Series A Preferred Stock for eight consecutive Payment
Dates, then the holders of Series A Preferred Stock, as their sole and exclusive
remedy, may elect at their option, upon written notice to the Company, to
receive shares of Common Stock in payment of the accrued dividends payable on
their shares of Series A Preferred Stock in lieu of receiving the cash dividends
accrued under Section 2.1. In the event of such an election by one or more
holders of Series A Preferred Stock, the Company shall issue to each electing
holder of Series A Preferred Stock that number of shares of Common Stock having
a fair market value on the date of issuance equal to the amount of cash
dividends accrued but unpaid with respect to the Series A Preferred Stock of
such holder. The fair market value of the shares of Common Stock to be
distributed hereunder shall be determined in accordance with Section 3.3 below.
Issuance of such shares of Common Stock in lieu of cash dividends shall take
place within 60 days of the date of notice of the election. If the holders of
Series A Preferred Stock do not elect to receive shares of Common Stock in
payment of the accrued dividends as provided above, cash dividends shall
continue to accrue pursuant to Section 2.1.
2.4 Payment on Conversion. If, upon the conversion of any of the
Series A Preferred Stock as provided in Section 6, the Company shall have
accrued and unpaid dividends with respect to such Series A Preferred Stock, then
the Company shall, at its option, either (i) pay in cash to the holder of the
shares of Series A Preferred Stock being converted the full amount of any
dividends accrued and unpaid on such shares or (ii) issue additional shares of
Common Stock to the holders of the Series A Preferred Stock being converted
equal in value, in the good faith judgment of the Board, to the value of the
accrued but unpaid dividends on the Series A Preferred Stock being converted.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
shareholders (the "Available Funds and Assets") shall, after distribution of the
liquidation preference(s) of all senior series of Preferred Stock which may be
created by the Board pursuant to Article IV of the Company's Certificate of
Incorporation, be distributed to the holders of Series A Preferred Stock in the
following manner:
3.1 Series A Preferred Stock. The holder of each share of Series
A Preferred Stock then outstanding shall be entitled to be paid, after
distribution of the liquidation preference(s) of all senior series of Preferred
Stock which may be created by the Board pursuant to Article IV of the Company's
Certificate of Incorporation, out of the Available Funds and Assets, and prior
and in preference to any payment or distribution or setting apart for any
payment or distribution of any Available Funds and Assets on shares of Common
Stock, an amount per share equal to the Original Issue Price of the Series A
Preferred Stock plus an amount equal to all accrued and unpaid dividends
thereon, whether or not earned or declared, to and including the date full
payment of such amount shall be tendered to the holders of the Series A
Preferred Stock with respect to such liquidation, dissolution or winding up. If
upon any liquidation, dissolution or winding up of the Company, the Available
Funds and Assets to be distributed to the holders of the Series A Preferred
Stock shall be insufficient to permit the
- 3 -
<PAGE> 4
payment to such shareholders of their full preferential amount described in this
subsection, then, subject to the rights of any future series of Preferred Stock
which may be created by the Board pursuant to Article IV of the Company's
Certificate of Incorporation, all of the Available Funds and Assets shall be
distributed among the holders of the then outstanding Series A Preferred Stock
pro rata according to the number of outstanding shares of Series A Preferred
Stock held by each holder thereof. The liquidation rights of the Series A
Preferred Stock shall not be participating, and accordingly the holders of
Series A Preferred Stock shall not be entitled to any payments on liquidation
except as expressly set forth in this Section 3.
3.2 Merger or Sale of Assets. A consolidation or merger of the
Company with or into any other corporation or corporations or other entity, or a
sale, conveyance or disposition of all or substantially all of the assets of the
Company shall not be deemed to be a liquidation, dissolution or winding up of
the Company within the meaning of this Section 3.
3.3 Non-Cash Consideration. If any assets of the Company
distributed to shareholders in connection with any liquidation, dissolution, or
winding up of the Company are other than cash, then the value of such assets
shall be their fair market value as determined in good faith by the Board,
except that any securities to be distributed to shareholders in a liquidation,
dissolution, or winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject
to investment letter or other similar restrictions on free marketability shall
be as follows:
(i) if the securities are then traded on a
national securities exchange or the NASDAQ National Market System (or a similar
national quotation system), then the value shall be deemed to be the average of
the closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then
the value shall be deemed to be the average of the closing bid prices over the
30-day period ending three (3) days prior to the distribution; and
(iii) if there is no active public market,
then the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company.
(b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i),(ii) or (iii) of this subsection to reflect the approximate
fair market value thereof, as determined in good faith by the Board.
4. REDEMPTION.
4.1 Optional Redemption. Subject to the provisions regarding
partial redemption in subsection 4.2 below, the Company may, at any time, at the
option of the Board, redeem the Series A Preferred Stock in whole or in part.
The redemption price for each share of Series A Preferred Stock shall be an
amount in cash equal to 110% of the Original Issue Price for the Series A
Preferred Stock plus the amount of all accrued and unpaid dividends thereon
through and including the Series A Redemption Date.
- 4 -
<PAGE> 5
4.2 Partial Redemption. No redemption shall be made under this
Section 4 of only a part of the then outstanding Series A Preferred Stock,
unless the Company shall effect such redemption pro rata among all holders of
then outstanding Series A Preferred Stock according to the number of shares held
by each holder thereof on the applicable Series A Redemption Date.
4.3 Redemption Notice. At least twenty (20) but no more than
sixty (60) days prior to the date fixed for any redemption of Series A Preferred
Stock (the "Series A Redemption Date"), written notice shall be mailed by the
Company, postage prepaid, to each holder of record (at the close of business on
the business day next preceding the day on which notice is given) of the Series
A Preferred Stock to be redeemed, at the address last shown on the records of
the Company for such holder or given by the holder to the Company for the
purpose of notice or, if no such address appears or is given, at the place where
the principal executive office of the Company is located, notifying such holder
of the redemption to be effected, the Series A Redemption Date, the applicable
redemption price, the number of such holder's shares of Series A Preferred Stock
to be redeemed, the place at which payment may be obtained and the date on which
such holder's conversion rights (as set forth in Section 6) as to such shares
terminate and calling upon such holder to surrender to the Company, in the
manner and at the place designated, the certificate or certificates representing
the shares of Series A Preferred Stock to be redeemed (the "Series A Redemption
Notice").
4.4 Surrender of Certificates. On or before each designated
Series A Redemption Date, each holder of Series A Preferred Stock to be redeemed
shall (unless such holder has previously exercised his right to convert such
shares of Series A Preferred Stock into Common Stock as provided in Section 6
below), surrender the certificate(s) representing such shares of Series A
Preferred Stock to be redeemed to the Company, in the manner and at the place
designated in the Series A Redemption Notice, and thereupon the redemption price
for such shares shall be payable to the order of the person whose name appears
on such certificate(s) as the owner thereof, and each surrendered certificate
shall be canceled and retired. If less than all of the shares represented by
such certificate are redeemed, then the Company shall promptly issue a new
certificate representing the unredeemed shares of Series A Preferred Stock.
4.5 Effect of Redemption. If the Series A Redemption Notice
shall have been duly given, and if on the Series A Redemption Date the
redemption price is either paid or made available for payment through the
deposit arrangements specified in subsection 4.6 below or other appropriate
method established by the Board, then notwithstanding that the certificates
evidencing any of the shares of Series A Preferred Stock so called for
redemption shall not have been surrendered, all dividends with respect to such
shares shall cease to accrue after the Series A Redemption Date, such shares
shall not thereafter be transferred on the Company's books and all rights of the
holders of such shares with respect to such shares shall terminate after the
Series A Redemption Date, except only the right of the holders to receive the
redemption price without interest upon surrender of their certificate(s)
therefor.
4.6 Deposit of Redemption Price. On or prior to the Series A
Redemption Date, the Company may, at its option, deposit with a bank or trust
company in San Francisco, California having a capital and surplus of at least
$100,000,000, as a trust fund, a sum equal to the aggregate redemption price for
all shares of Series A Preferred Stock called for redemption
- 5 -
<PAGE> 6
and not yet redeemed or converted, with irrevocable instructions and authority
to the bank or trust company to pay, on or after the Series A Redemption Date,
the redemption price to the respective holders upon the surrender of their share
certificates. From and after the date of such deposit, the shares so called for
redemption shall be redeemed and the dividends on those shares shall cease to
accrue after the Series A Redemption Date. The deposit shall constitute full
payment of the shares to their holders, and from and after the date of the
deposit, the shares shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except the right to receive from the bank or
trust company payment of the redemption price of the shares, without interest,
upon surrender of their certificates therefor, and the right to convert such
shares as provided in Section 6 below. Any funds so deposited and unclaimed at
the end of one (1) year from the Series A Redemption Date shall be released or
repaid to the Company, after which time the holders of shares called for
redemption who have not claimed such funds shall be entitled to receive payment
of the redemption price only from the Company.
5. VOTING RIGHTS.
5.1 Series A Preferred Stock. Except as required by law, the
Series A Preferred Stock shall be non-voting.
5.2 If Vote Required By Law. In those instances, and only those
instances, where the Series A Preferred Stock is entitled to vote as a matter of
law, each holder of shares of Series A Preferred Stock shall be entitled to the
number of votes equal to the number of whole shares of Common Stock into which
such shares of Series A Preferred Stock could be converted pursuant to the
provisions of Section 6 below at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of shareholders
is solicited.
6. CONVERSION RIGHTS. The outstanding shares of Series A Preferred Stock
shall be convertible into Common Stock as follows:
6.1 Optional Conversion.
(a) At the option of the holder thereof, each share of
Series A Preferred Stock shall be convertible, at any time or from time to time
prior to the close of business on the third business day before any date fixed
for redemption of such share, into fully paid and nonassessable shares of Common
Stock as provided herein.
(b) Each holder of Series A Preferred Stock who elects
to convert the same into shares of Common Stock shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Series A Preferred Stock or Common Stock, and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Series A Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted, and the
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<PAGE> 7
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
6.2 Automatic Conversion.
(a) Each share of Series A Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock, as provided herein: (i) immediately prior to the earlier of (I) the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended, covering (at a minimum) the offer and sale of Common Stock for the
account of the Company; (II) a consolidation or merger of the Company with or
into any other corporation or corporation in which the holders of the Company's
outstanding shares immediately before such consolidation or merger do not,
immediately after such consolidation or merger, retain stock representing a
majority of the voting power of the surviving corporation of such consolidation
or merger; or (III) a sale of all or substantially all of the assets of the
Company; or (ii) upon the Company's receipt of the written consent of the
holders of a majority of the then outstanding shares of Series A Preferred Stock
to the conversion of all then outstanding Series A Preferred Stock under this
Section 6.
(b) Upon the occurrence of any event specified in
subparagraph 6.2(a)(i) or (ii), the outstanding shares of Series A Preferred
Stock shall be converted into Common Stock automatically without the need for
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series A Preferred
Stock are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series A Preferred Stock, the holders of Series A Preferred
Stock shall surrender the certificates representing such shares at the office of
the Company or any transfer agent for the Series A Preferred Stock or Common
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
6.3 Conversion Price. Each share of Series A Preferred Stock
shall be convertible in accordance with subsection 6.1 or subsection 6.2 above
into the number of shares of Common Stock which results from dividing the
Original Issue Price for the Series A Preferred Stock by the conversion price
for the Series A Preferred Stock that is in effect at the time of conversion
(the "Conversion Price"). The initial Conversion Price for the Series A
Preferred Stock shall be the Original Issue Price for the Series A Preferred
Stock. The Conversion Price shall be subject to adjustment from time to time as
provided below.
6.4 Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
A Preferred
- 7 -
<PAGE> 8
Stock shall, simultaneously with the happening of such Common Stock Event, be
adjusted by multiplying the Conversion Price of the Series A Preferred Stock in
effect immediately prior to each such Common Stock Event by a fraction, (i) the
numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Common Stock Event, and (ii) the
denominator of which shall be the number of shares of Common Stock issued and
outstanding immediately after such Common Stock Event, and the product so
obtained shall thereafter be the Conversion Price for the Series A Preferred
Stock. The Conversion Price for the Series A Preferred Stock shall be readjusted
in the same manner upon the happening of each subsequent Common Stock Event. As
used herein, the term "Common Stock Event" shall mean (i) the issue by the
Company of additional shares of Common Stock as a dividend or other distribution
without consideration on outstanding Common Stock, (ii) a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or (iii) a combination of the outstanding shares of Common Stock into a
smaller number of shares of Common Stock.
6.5 Adjustments for Other Dividends and Distributions. If at any
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution without consideration to the holders of
the Common Stock payable in securities of the Company other than shares of
Common Stock, then in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable upon conversion
thereof, the amount of securities of the Company which they would have received
had their Series A Preferred Stock been converted into Common Stock on the date
of such event (or such record date, as applicable) and had they thereafter,
during the period from the date of such event (or such record date, as
applicable) to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 6 with respect to
the rights of the holders of the Series A Preferred Stock or with respect to
such other securities by their terms.
6.6 Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date the Common
Stock issuable upon the conversion of the Series A Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification, reorganization or otherwise
(other than by a Common Stock Event or a dividend, distribution, merger,
consolidation or sale of assets provided for elsewhere in this Section 6), then
in any such event each holder of Series A Preferred Stock shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization, reclassification,
reorganization or other change by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock could have been
converted immediately prior to such recapitalization, reclassification,
reorganization or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
6.7 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for the Series A Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and
- 8 -
<PAGE> 9
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of the Series A Preferred Stock at the holder's address as
shown in the Company's books.
6.8 Fractional Shares. No fractional shares of Common Stock
shall be issued upon any conversion of Series A Preferred Stock. In lieu of any
fractional share to which the holder of Series A Preferred Stock would otherwise
be entitled, the Company shall pay the holder cash equal to the product of such
fraction multiplied by the Common Stock's fair market value as determined in
good faith by the Board as of the date of conversion.
6.9 Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
6.10 Notices. At least ten (10) but not more than sixty (60)
days prior to (a) the record date for any dividends to be paid to any holders of
Common Stock, or (b) the date of automatic conversion pursuant to Section
6.2(a)(i), the Company shall give written notice to the holders of the Series A
Preferred Stock; provided, however, that failure to give such notice shall not
invalidate any such dividend, public offering, consolidation, merger or sale of
assets. Any notice required by the provisions of this Section 6 to be given to
the holders of shares of the Series A Preferred Stock shall be deemed given upon
the earlier of actual receipt or deposit in the United States mail, postage
prepaid, addressed to each holder of record at the address of such holder
appearing on the books of the Company.
6.11 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
Stock against impairment.
IN WITNESS WHEREOF, this Company has caused this Certificate of
Designation to be signed and attested by its duly authorized officers this 12th
day of May, 1997.
/s/ John D. Fruth
John D. Fruth, President
ATTEST:
/s/ Terence M. Fruth
Terence M. Fruth, Secretary
- 9 -
<PAGE> 1
EXHIBIT 3.03
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
OCULAR SCIENCES, INC.
ARTICLE I
The name of the corporation is Ocular Sciences, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle.
The name of its registered agent at that address is Corporation Service Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
A. Authorization of Shares
The total number of shares of all classes of stock which the
corporation has authority to issue is forty-four million (44,000,000) shares,
consisting of two classes: forty million (40,000,000) shares of Common Stock,
$0.001 par value per share, and four million (4,000,000) shares of Preferred
Stock, $0.001 par value per share.
B. Designation of Future Series of Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
certificate of designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included
in each such series, to fix the designation, powers, preferences and rights of
the shares of each such series and any qualifications, limitations or
restrictions thereof and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then
outstanding). Subject to approval by the Board of Directors, the number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a certificate or
certificates establishing a series of Preferred Stock.
Except as expressly provided in any certificate of designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors
<PAGE> 2
Ocular Sciences, Inc.
Restated Certificate of Incorporation
without approval of the holders of Common Stock or the holders of Preferred
Stock, or any series thereof, and any such new series may have powers,
preferences and rights, including, without limitation, voting rights, dividend
rights, liquidation rights, redemption rights and conversion rights senior to,
junior to or pari passu with the rights of the Common Stock, the Preferred
Stock, or any future class or series of Preferred Stock or Common Stock.
If the certificate of designation creating a series of Preferred Stock
so provides, any shares of a series of Preferred Stock that are acquired by the
corporation, whether by redemption, purchase, conversion or otherwise, so that
such shares are issued but not outstanding, may not be reissued as shares of
such series or as shares of the class of Preferred Stock. Upon the retirement
of any such shares and the filing of a certificate of retirement pursuant to
Sections 103 and 243 of the Delaware General Corporation Law with respect
thereto, the shares of such series shall be eliminated and the number of shares
of Preferred Stock shall be reduced accordingly.
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Actions shall be taken by the corporation's stockholders only at annual
or special meetings of stockholders, and the corporation's stockholders shall
not be able to act by written consent.
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<PAGE> 1
EXHIBIT 3.04
BYLAWS
OF
OCULAR SCIENCES, INC.
(A DELAWARE CORPORATION)
AS ADOPTED MAY 10, 1997
<PAGE> 2
BYLAWS
OF
OCULAR SCIENCES, INC.
(a Delaware corporation)
TABLE OF CONTENTS
PAGE
----
ARTICLE I - STOCKHOLDERS ..................................................1
Section 1.1: Annual Meetings...................................1
Section 1.2: Special Meetings..................................1
Section 1.3: Notice of Meetings................................1
Section 1.4: Adjournments......................................1
Section 1.5: Quorum............................................2
Section 1.6: Organization......................................2
Section 1.7: Voting; Proxies...................................2
Section 1.8: Fixing Date for Determination of Stockholders
of Record ...................................3
Section 1.9: List of Stockholders Entitled to Vote.............4
Section 1.10: Action by Written Consent of Stockholders.........4
Section 1.11: Inspectors of Elections...........................5
Section 1.12: Notice of Stockholder Business; Nominations.......6
ARTICLE II - BOARD OF DIRECTORS...............................................8
<PAGE> 3
PAGE
----
Section 2.1: Number; Qualifications............................8
Section 2.2: Election; Resignation; Removal; Vacancies.........8
Section 2.3: Regular Meetings..................................8
Section 2.4: Special Meetings..................................9
Section 2.5: Telephonic Meetings Permitted.....................9
Section 2.6: Quorum; Vote Required for Action..................9
Section 2.7: Organization......................................9
Section 2.8: Written Action by Directors.......................9
Section 2.9: Powers............................................9
Section 2.10: Compensation of Directors.........................9
ARTICLE III - COMMITTEES .................................................10
Section 3.1: Committees.......................................10
Section 3.2: Committee Rules..................................10
ARTICLE IV - OFFICERS .................................................10
Section 4.1: Generally........................................10
Section 4.2: Chief Executive Officer..........................11
Section 4.3: Chairman of the Board............................11
Section 4.4: President........................................11
Section 4.5: Vice President...................................12
Section 4.6: Chief Financial Officer..........................12
Section 4.7: Treasurer........................................12
<PAGE> 4
PAGE
----
Section 4.8: Secretary........................................12
Section 4.9: Delegation of Authority..........................12
Section 4.10: Removal..........................................12
ARTICLE V - STOCK .................................................13
Section 5.l: Certificates.....................................13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate......................13
Section 5.3: Other Regulations................................13
ARTICLE VI - INDEMNIFICATION.................................................13
Section 6.1: Indemnification of Officers and Directors........13
Section 6.2: Advance of Expenses..............................14
Section 6.3: Non-Exclusivity of Rights........................14
Section 6.4: Indemnification Contracts........................14
Section 6.5: Effect of Amendment..............................14
ARTICLE VII - NOTICES .................................................15
Section 7.l: Notice...........................................15
Section 7.2: Waiver of Notice.................................15
ARTICLE VIII - INTERESTED DIRECTORS..........................................15
Section 8.1: Interested Directors; Quorum.....................15
ARTICLE IX - MISCELLANEOUS .................................................16
Section 9.1: Fiscal Year......................................16
<PAGE> 5
PAGE
----
Section 9.2: Seal.............................................16
Section 9.3: Form of Records..................................16
Section 9.4: Reliance Upon Books and Records..................16
Section 9.5: Certificate of Incorporation Governs.............16
Section 9.6: Severability.....................................16
ARTICLE X - AMENDMENT .................................................17
Section 10.1: Amendments.......................................17
<PAGE> 6
BYLAWS
OF
OCULAR SCIENCES, INC.
(a Delaware corporation)
As Adopted May 10, 1997
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as the Board of Directors shall each
year fix. Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President or the holders of shares of the
Corporation that are entitled to cast not less than ten percent (10%) of the
total number of votes entitled to be cast by all stockholders at such meeting,
or by a majority of the members of the Board of Directors. Special meetings may
not be called by any other person or persons. If a special meeting of
stockholders is called by any person or persons other than by a majority of the
members of the Board of Directors, then such person or persons shall call such
meeting by delivering a written request to call such meeting to each member of
the Board of Directors, and the Board of Directors shall then determine the
time, date and place of such special meeting, which shall be held not more than
one hundred twenty (120) nor less than thirty-five (35) days after the written
request to call such special meeting was delivered to each member of the Board
of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned
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<PAGE> 7
meeting if the time, date and place thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the adjournment is
for more than thirty (30) days, or if after the adjournment, a new record date
is fixed for the adjourned meeting, then a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting. At the
adjourned meeting, the Corporation may transact any business that might have
been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, at the
meeting may adjourn the meeting. Shares of the Corporation's stock belonging to
the Corporation (or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation are held,
directly or indirectly, by the Corporation), shall neither be entitled to vote
nor be counted for quorum purposes; provided, however, that the foregoing shall
not limit the right of the Corporation or any other corporation to vote any
shares of the Corporation's stock held by it in a fiduciary capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken by
written ballot, then each such ballot shall state the name of the stockholder or
proxy voting and such other information as the chairman of the meeting deems
appropriate.
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Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Unless otherwise provided by applicable law, the
Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
(a) Generally. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Stockholder Request for Action by Written Consent. For such period
of time as stockholders are authorized to act by written consent pursuant to the
provisions of the Certificate of Incorporation and Section 1.10 hereof, any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the
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Board of Directors is required by applicable law, then the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
(a) Procedure. Unless otherwise provided by the Certificate of
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that effective immediately after the closing of an
underwritten public offering of shares of the Corporation's Common Stock
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, any action required or permitted to be taken
by the Corporation's stockholders shall be taken only at a duly called annual or
special meeting of such stockholders, and the Corporation's stockholders shall
not be able to act by written consent. For such period of time as written
stockholder consents are permitted, such consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written consent
shall be effective to take the action set forth therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation in the
manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action
by stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing, and, in the case of a Certificate
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Action (as defined below), if the Delaware General Corporation Law so requires,
such notice shall be given prior to filing of the certificate in question. If
the action which is consented to requires the filing of a certificate under the
Delaware General Corporation Law (a "Certificate Action"), then if the Delaware
General Corporation Law so requires, the certificate so filed shall state that
written stockholder consent has been given in accordance with Section 228 of the
Delaware General Corporation Law and that written notice of the taking of
corporate action by stockholders without a meeting as described herein has been
given as provided in such section.
Section 1.11: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors
of election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors and (v) certify
their determination of the number of shares represented at the meeting and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
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(f) Determinations. In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, the ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons that represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders
shall be made at an annual meeting of stockholders (A) pursuant to the
Corporation's notice of such meeting, (B) by or at the direction of the Board of
Directors or (C) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of the notice provided for in this Section 1.12,
who is entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 1.12.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.12, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder, to be timely, must be so
delivered not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such stockholder's
notice shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (1) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (2) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
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(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 1.12, the term "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
1.12, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.12 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
consist of one or more members. The initial number of directors shall be six
(6), and thereafter shall be fixed from time to time by resolution of the Board
of Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors; and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting
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from any increase in the authorized number of directors to be elected by all
stockholders having the right to vote as a single class, may be filled by the
stockholders, by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand-delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
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Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules, each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
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Section 4.1: Generally. The officers of the Corporation shall consist
of a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. Any number of offices may be held by the same person.
Any officer may resign at any time upon written notice to the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of stock
of the Corporation; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Corporation and to supervise and
control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not designated
any other officer to be the Chief Executive Officer, then the Chairman of the
Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall
have the power to preside at all meetings of the Board of Directors and shall
have such other powers and duties as provided in these bylaws and as the Board
of Directors may from time to time prescribe.
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Section 4.4: President. The President shall be the Chief Executive
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of president or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of a treasurer or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of secretary or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10: Removal. Any officer of the Corporation shall serve at
the pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of
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Directors. Such removal shall be without prejudice to the contractual rights of
such officer, if any, with the Corporation.
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ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it that is alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
agree to indemnify the Corporation and/or to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she (or a person of whom he or she is the legal representative) is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes and penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that the Corporation shall indemnify any such person seeking indemnity in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation;
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<PAGE> 21
provided, further, that the Corporation shall not be required to indemnify a
person for amounts paid in settlement of a proceeding unless the Corporation
consents in writing to such a settlement (such consent not to be unreasonably
withheld). As used herein, the term "Reincorporated Predecessor" means a
corporation that is merged with and into the Corporation in a statutory merger
where (a) the Corporation is the surviving corporation of such merger and (b)
the primary purpose of such merger is to change the corporate domicile of the
Reincorporated Predecessor, and shall include O.S.I. Corporation, a California
corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all
expenses (including attorneys' fees) incurred by such a director or officer in
defending any such proceeding as such expenses are incurred in advance of its
final disposition; provided, however, that if the Delaware General Corporation
Law then so requires, the payment of such expenses incurred by such a director
or officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification and
related rights to such person. Such rights may be greater than those provided in
this Article VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
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<PAGE> 22
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein
or required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery (including use of a delivery service), by depositing such notice in the
mail, postage prepaid, or by sending such notice by prepaid telegram, telex,
overnight express courier, mailgram or facsimile. Any such notice shall be
addressed to the person to whom notice is to be given at such person's address
as it appears on the records of the Corporation. The notice shall be deemed
given (i) in the case of hand delivery, when received by the person to whom
notice is to be given or by any person accepting such notice on behalf of such
person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in
the case of delivery by overnight express courier, on the first business day
after such notice is dispatched, and (iv) in the case of delivery via telegram,
telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to
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<PAGE> 23
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including, without
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<PAGE> 24
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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<PAGE> 1
EXHIBIT 4.01
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
O.S.I. CORPORATION,
GALEN PARTNERS, L.P.,
GALEN PARTNERS INTERNATIONAL, L.P.
ALLERGAN, INC.
JOHN FRUTH
ANTHONY GALLEY
ANITA HALL
GEOFFREY GALLEY
RONALD HANSMAN
ALBERT MORLAND
BARRIE BEVIS
IVOR ATKINSON
----------------------
October 30, 1992
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
SECTION 1. BACKGROUND; DEFINITIONS...........................................
SECTION 2. REGISTRATION......................................................
2.1 Registration on Request.........................
2.2 Incidental Registration.........................
2.3 Registration Procedures.........................
2.4 Preparation; Reasonable Investigation...........
2.5 Indemnification.................................
SECTION 3. MISCELLANEOUS.....................................................
3.1 Rule 144........................................
3.2 Amendments and Waivers..........................
3.3 Assignment of Registration Rights...............
3.4 Limitations on Subsequent Registration Rights...
3.5 Specific Performance............................
3.6 Notices.........................................
3.7 Successors and Assigns..........................
3.8 Entire Agreement................................
3.9 Termination.....................................
3.10 Gender; Number..................................
3.11 Governing Law...................................
3.12 Jurisdiction....................................
3.13 Headings........................................
3.14 Counterparts....................................
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is dated as of October 30, 1992 and
is among O.S.I. Corporation, a California corporation (the "Company"), and the
undersigned parties hereto.
1. BACKGROUND; DEFINITIONS.
1.1 Background. The Company, Galen Partners, L.P. ("Galen
Partners"), Galen Partners International, L.P. ("Galen International" and
together with Galen Partners, "Galen" or the "Equity Investors") are parties to
a Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase
Agreement") pursuant to which the Equity Investors will purchase 425,399 shares
of Common Stock, no par value, of the Company (the "Common Stock"). The Equity
Investors and Allergan, Inc. ("Allergan", collectively with the Equity
Investors, the "Investors") are parties to a Subordinated Note and Warrant
Agreement dated as of the date hereof (the "Note and Warrant Agreement")
pursuant to which the Company is issuing to the investors 14% Senior
Subordinated Notes and warrants ("Warrants") to purchase 436,586 shares of
Common Stock. Simultaneously with the consummation of the Stock Purchase
Agreement and the Subordinated Note and Warrant Agreement, the Company will
issue to Allergan 29,542 shares of Series A Preferred Stock, no par value (the
"Preferred Stock") in partial payment of the purchase price for certain assets
being purchased by the Company from certain subsidiaries of Allergan pursuant to
an Agreement of Purchase and Sale of Assets dated April 28, 1992 among the
Company and said subsidiaries (the "Asset Purchase Agreement").
1.2 Certain Definitions. For purposes of this Agreement,
the following terms shall have the meanings set forth below:
(a) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), and the declaration or ordering of effectiveness of such registration
statement or document.
(b) The term "Registrable Securities" means: (1) the
Common Stock issued to the holders (the "Founders") of Common Stock outstanding
immediately prior to the execution
<PAGE> 4
of the Stock Purchase Agreement (the "Founders' Shares"); (2) the Common Stock
issued to the Equity Investors pursuant to the Stock Purchase Agreement; (3) the
Common Stock issuable or issued upon exercise of the Warrants issued to the
Investors pursuant to the Securities Purchase Agreement; (4) the Common Stock
issued or issuable upon conversion of the Preferred Stock issued to Allergan
pursuant to the Asset Purchase Agreement; and (5) any Common Stock of the
Company or any other entity issued as or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the Common Stock referred to in clauses (1) through (4), the Warrants or the
Preferred Stock or in connection with a stock split, combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
other than shares of capital stock distributed to the public pursuant to an
effective registration statement or Rule 144 (or successor thereto) under the
Securities Act, and excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his rights under this Agreement are
not assigned.
(c) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock outstanding which are
Registrable Securities, and the number of shares of Common Stock which would be
Registrable Securities upon issuance upon conversion or exercise of, or in
exchange for, any of the securities referred to in Section 1.2(b).
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Article II of the Shareholders' Agreement dated as of the date
hereof among the Company, the Investors and the Founders (the "Shareholders'
Agreement").
(e) The term "Qualified Holder or Holders" means the
Investors acting together or individually as the Holder or Holders of at least
10% of the Registrable Securities then outstanding held by all Holders.
2. REGISTRATION.
2.1. Registration on Request.
(a) At any time after the earlier of (x) June 30, 1995
and (y) the first date on which the Company shall have offered shares of Common
Stock to the public pursuant to an effective registration statement under the
Securities Act (the "Initial Public Offering"), one or more Qualified
2
<PAGE> 5
Holders may request in writing that the company effect the registration under
the Securities Act of all or part of the Registrable Securities held by such
Qualified Holder or Holders, which request shall specify the intended method or
methods of disposition of such Registrable Securities. The Company will promptly
give written notice of such requested registration by certified or registered
mail to all Holders and thereupon will use its best efforts to effect (at the
earliest possible date and if possible within 90 days after the giving of such
written notice by the Company) the registration, under the Securities Act, of:
(i) the Registrable Securities which the Company has been
so requested to register by such Qualified Holder or Holders, for
disposition in accordance with the intended method of disposition
stated in such request; and
(ii) all other Registrable Securities which the Company
has been requested to register by a Holder or Holders, by written
request delivered to the Company within 30 days after the giving of
such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities),
provided that:
(A) if the Company shall have previously
effected a registration pursuant to this Section 2.1, or shall
have previously effected a registration of which notice has
been given to all Holders pursuant to Section 2.2, the Company
shall not be required to effect another registration pursuant
to this Section 2.1 until a period of six (6) months shall
have elapsed from the termination of effectiveness of the most
recent such previous registration;
(B) the Company shall not be required to
effect any registration pursuant to this Section 2.1 unless it
is a registration with respect to which the Company is
required to pay Registration Expenses (as hereinafter defined)
pursuant to Section 2.1(b);
(C) the Company shall not be required to
effect any registration pursuant to this Section 2.1 unless
the Holder or Holders requesting registration pursuant to
clauses (i) and (ii) above have requested to include in the
applicable registration Registrable Securities owned by them
representing at least 20% of the Registrable Securities then
outstanding; and
3
<PAGE> 6
(D) the Company shall not be required to
effect any registration pursuant to this Section 2.1, and shall
have the right to defer such registration for up to 120 days, if
such registration would, in the reasonable judgment of the
Company's Board of Directors, (x) prevent or materially and
adversely affect a registration of the Common Stock on behalf of
the Company which had been planned by the Board prior to receipt
of the request for registration pursuant to this Section 2.1 or
(y) require the Company to disclose any information which the
Company has a bona fide corporate purpose for preserving as
confidential and the disclosure of which information at such
time is, in the reasonable judgment of the Company's Board of
Directors, reasonably likely to have a material adverse effect
on the business, assets or financial condition of the Company.
(b) The Company will pay all Registration Expenses in connection
with either (x) each of the first three registrations of Registrable Securities
effected by the Company pursuant to this Section 2.1 or (y) each of the first
two registrations of Registrable Securities effected by the Company pursuant to
this Section 2.1 if (i) any of the Qualified Holders have exercised their rights
pursuant to Section 2.2 of this Agreement to participate in the Initial Public
Offering and such participating Qualified Holders registered in the aggregate
Registrable Securities then owned by them representing at least 18% of the
Registrable Securities then outstanding or if (ii) the Company has effected the
registration of any Deferred Demand Securities pursuant to Section 2.3(b)
hereof. The term "Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this section 2 including, without
limitation, all registration and filing fees; all applicable transfer taxes, if
any; all fees and expenses of complying with securities or blue sky laws; all
printing expenses; the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
required by or incident to such performance and compliance; and the reasonable
fees and disbursements up to a maximum of $25,000 of one counsel (other than in
house counsel) for the Holders on whose behalf securities are being registered,
which counsel shall be reasonably acceptable to each of the Investors; but
excluding any allocation of Company personnel or other general overhead expenses
of the Company or other expenses for the preparation of financial statements or
other data normally prepared by the Company in the ordinary course of its
business, which shall be borne by the Company in all cases.
4
<PAGE> 7
(c) If any Registrable Securities included by any Holder in a
registration pursuant to this Section 2.1 are to be sold in an underwritten
offering, then each other Holder who is registering Registrable Securities in
the same registration shall have the right, at its election, to demand that all
Registrable Securities be sold in such underwritten offering on the same terms
and conditions, including price, subject, however, to the provisions of Section
2.3(b).
(d) A registration requested pursuant to this Section 2.1
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective, provided that a registration which
does not become effective after the Company has filed a registration statement
with respect thereto solely by reason of the refusal to proceed of the Qualified
Holders requesting such registration (the "Initiating Holders") shall be deemed
to have been effected by the Company at the request of such Initiating Holders
unless the Initiating Holders shall have elected to pay all Registration
Expenses in connection with such registration, provided, however, that if at the
time of such refusal to proceed (A) the Initiating Holders have learned of a
material adverse change in the business, condition or prospects of the Company
not known to the Initiating Holders at the time of their request, (B) the
existence of such material adverse change was known to the Company at the time
of the Initiating Holders' request for registration, and (C) the Initiating
Holders have notified the Company of their refusal to proceed with reasonable
promptness following disclosure by the Company of such material adverse change,
then such registration shall not be deemed to have been effected and the
Initiating Holders shall not be required to pay any Registration Expenses in
connection therewith; (ii) if, after it has become effective, such registration
is interfered with by any stop order, injunction or other order or requirement
of the Securities and Exchange Commission (the "Commission") or other
governmental agency or court for any reason; or (iii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of
some act or omission by such Initiating Holders.
5
<PAGE> 8
2.2. Incidental Registration.
(a) If the company at any time proposes to register any of its
securities under the Securities Act, whether or not for sale for its own
account, other than pursuant to Section 2.3(b), on a form and in a manner which
would permit registration of shares of Common Stock for sale to the public under
the Securities Act, it will, each such time, give prompt written notice to all
Holders of its intention to do so, describing such securities and specifying the
form and manner and the other relevant facts involved in such proposed
registration. Upon the written request of any Holder delivered to the Company
within 30 days after the giving of any such notice (which request shall specify
the number of Registrable Securities intended to be disposed of by such Holder
and the intended method of disposition thereof), the Company will include in
such registration such number of Registrable Securities as a Holder may specify
in its request, provided that:
(i) if, at any time after giving such
written notice of its intention to register any of its securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for
any reason not to register such securities, the Company may, at its
election, give written notice of such determination to each Holder
and thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses already incurred
in connection therewith as provided in subsection (b) of this Section
2.2), without prejudice, however, to the rights of any one or more
Qualified Holders to request registration pursuant to Section 2.1;
(ii) if (A) the registration so proposed by the Company
involves an underwritten offering of the securities so being
registered, whether or not for sale for the Company's own account,
other than pursuant to Section 2.1 or Section 2.3(b), (B) the
Registrable Securities so requested to be registered for sale for the
account of any Holder are not also to be included in such
underwritten offering, and (C) the managing underwriter of such
underwritten offering shall advise the Board of Directors of the
Company that, in its reasonable opinion, the registration and
distribution of all or a specified portion of Registrable Securities
concurrently with the securities being distributed by such
underwriters is reasonably likely to materially
6
<PAGE> 9
and adversely affect the distribution of such securities by such
underwriters (such opinion to state the reasons therefor), then the
Company will promptly furnish each Holder who has requested
registration of such Registrable Securities not to be included in such
underwritten offering pursuant to this Section 2.2 with a summary (or
to the extent written, a copy) of such opinion. The Company may
require, by written notice accompanying such summary (or copy) of such
opinion to each such Holder, that the Registrable Securities requested
to be included in such registration statement be included in such
underwritten offering or be excluded from such registration; and
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.2
incidental to the registration of any of its securities in connection
with mergers, acquisitions, exchange offers, dividend reinvestment
plans, employee stock ownership plans or stock option plans, thrift
plans, pension plans or other employee benefit plans.
(b) The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested by a
Holder pursuant to this Section 2.2.
2.3. Registration Procedures.
(a) If and whenever the Company is requested or required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Sections 2.1, 2.2 or 2.3(b), the Company will as expeditiously as
possible:
(i) prepare and (in any event within 60 days after the
end of the period within which requests for registration may be
delivered to the Company) file with the Commission a registration
statement on the appropriate form with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective as promptly as practicable;
(ii) prepare and file with the commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration
7
<PAGE> 10
statement until the earlier of such time as all Registrable Securities have
been disposed of in accordance with the intended methods of disposition by the
Holders thereof set forth in such registration statement or the expiration of
150 days after such registration statement becomes effective;
(iii) furnish to each Holder participating in the registration such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and
such other documents, as such Holder may reasonably request to facilitate the
disposition of Registrable Securities owned by it;
(iv) use its best efforts to register or qualify all securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States and its territories as
each Holder participating in the registration shall reasonably request, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in any such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(v) furnish to each Holder of Registrable securities covered by
such registration statement a signed counterpart, addressed to such Holder, of
(A) an opinion of counsel for the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), and (B) a "cold comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
such registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events
8
<PAGE> 11
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered
to underwriters in underwritten public offerings of securities and, in the
case of the accountants' letter, such other financial matters, as such Holder
may reasonably request;
(vi) immediately notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such Holder prepare and
furnish to such Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vii) advise each Holder of Registrable Securities covered by such
registration statement promptly after the Company shall receive notice or
obtain knowledge of the issuance of any stop order by the Commission
suspending the effectiveness of any such registration statement or amendment
thereto or of the initiation or threatening of any proceeding for that
purpose, and promptly use all reasonable efforts to prevent the issuance of
any stop order or obtain its withdrawal promptly if such stop order should be
issued;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its securities
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first month of the first fiscal quarter after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
9
<PAGE> 12
(ix) if the Registrable Securities to be sold meet the
criteria for listing on any exchange on which the Common Stock is then
listed, apply for listing of such Registrable Securities on such
exchange.
The Company may require each Holder as to which any
registration is being effected to furnish the Company with such information
regarding such Holder and the distribution of its Registrable Securities as the
Company may from time to time request in writing, for inclusion in the
applicable registration statement, as reasonably determined by the Company to be
required by law, or by the commission, in connection therewith.
(b) If requested by the underwriters for any underwritten
offering on behalf of a Qualified Holder or Holders pursuant to a registration
requested under Section 2.1, the Company will enter into an underwriting
agreement with such underwriters for such offering, such agreement to contain
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.5. Whenever a registration
requested by one or more Qualified Holders pursuant to Section 2.1 is for an
underwritten offering, and the underwriters shall determine that the number of
Securities, including Registrable Securities requested to be included in such
offering, to be sold in any such underwritten offering should be limited due to
market conditions or otherwise, to the extent determined to be necessary by the
underwriters, the Registrable Securities requested to be registered by Holders
shall be excluded on a pro rata basis based upon the number of Registrable
Securities beneficially owned by Holders proposing to participate in such
underwritten offering (the "Deferred Demand Securities"); provided, however,
that Registrable Securities shall be excluded pursuant to this Section 2.3(b)
only if the reduction in the number of securities recommended by the
underwriters cannot be achieved by first excluding from the offering any
securities registrable pursuant to incidental registration rights granted
pursuant to a written agreement other than this Agreement to any person or
entity who is not a Holder; and provided further that such exclusion shall apply
until the completion of the distribution of such securities by such
underwriters, but in no event for a period of more than 120 days after the
effective date of such registration. In the event that, in accordance with this
Section 2.3(b), any Registrable Securities held by a Holder proposing to
participate in such underwritten offering pursuant to section 2.1 shall have
been excluded, the company shall, not
10
<PAGE> 13
later than the end of the 120 day period referred to above, register such
Deferred Demand Securities to the extent required to permit the distribution
thereof in accordance with the intended method of disposition previously
disclosed to the Company pursuant to Section 2.1, unless such Holder shall have
withdrawn his request to register his Deferred Demand securities, and no such
deferred registration hereunder shall be deemed to be a registration pursuant to
Section 2.1 hereof. The registration of such Deferred Demand securities pursuant
to an underwritten offering shall again be subject to exclusion as set forth in
the first sentence of this Section 2.3(b); provided that in no event will the
Company be required to effect more than one registration of Deferred Demand
Securities in connection with any exercise of demand registration rights
pursuant to Section 2.1. The Company will pay all Registration Expenses in
connection with the registration of Deferred Demand Securities pursuant to this
Section 2.3(b), if the proposed underwritten offering with respect to which such
Securities were deferred was an offer in respect of which the Company was
required to pay Registration Expenses pursuant to Section 2.1(c) hereof.
(c) If the Company at any time proposes to register any of its
securities under the Securities Act whether or not for sale for its own account
as contemplated by Section 2.2, but in circumstances in which Section 2.1 and
Section 2.3(b) do not apply, and such securities are to be distributed by or
through one or more underwriters, the Company will make reasonable efforts, if
requested by any Holder who requests incidental registration of Registrable
securities in connection therewith pursuant to Section 2.2, to arrange for such
underwriters to include such Registrable Securities among those securities to be
distributed by or through such underwriters; provided, however, that if the
underwriters shall determine that the inclusion of all or a specified portion of
such Registrable Securities and any other securities as to which incidental
registration rights are being sought would adversely affect such offering, all
securities registrable pursuant to incidental registration rights granted
pursuant to a written agreement other than this Agreement shall be excluded
first from such underwritten offering, and to the extent determined to be
necessary by the underwriters, Registrable Securities requested to be included
shall be next excluded, pro rata, such exclusion to be based on the respective
numbers of Registrable Securities beneficially owned by the Holders seeking to
include Registrable Securities in such written offering. The Holders on whose
behalf Registrable Securities are to be distributed by such underwriters shall
be parties to any such underwriting agreement and the representations and
warranties by, and the other agreements
11
<PAGE> 14
on the part of, the Company to and for the benefit of such underwriters, shall
also be made to and for the benefit of such Holders. Any such Holder of
Registrable securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Holder, such Holder's
Registrable securities and such Holder's intended method of distribution and any
other representation reasonably required in connection with the registration.
(d) Whenever a registration requested pursuant to Section
2.1, or a deferred registration required pursuant to the last paragraph of
Section 2.2(a)(ii) (in which the company is not registering securities for its
own account), or Section 2.3(b) is for an underwritten offering, the Holders of
a majority of the Registrable Securities included in such registration shall
have the right to select the managing underwriter to administer the offering
subject to the approval of the Company, such approval not to be unreasonably
withheld. If the Company at any time proposes to register any of its securities
under the securities Act for sale for its own account and such securities are to
be distributed by or through one or more underwriters, the Company shall select
the managing underwriter, such selection to be subject to the approval of the
Holders of a majority of the Registrable Securities participating in such
registration, such approval not to be unreasonably withheld.
(e) If any registration pursuant to Sections 2.1,
2.2 or 2.3(b) shall be in connection with an underwritten public offering, each
Holder of Registrable Securities agrees, if so timely required in writing by the
managing underwriters, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of, or
otherwise dispose of, Registrable Securities (other than as part of such
underwritten public offering) within the period commencing seven days prior to
the effective date of such registration statement and ending the earlier of (i)
120 days after the effective date of such registration statement and (ii) the
date on which all securities under such registration statement are sold. Each
Holder of Registrable Securities agrees that the Company may instruct its
transfer agent to place stop transfer notations in its records to enforce this
Section 2.3(e).
(f) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in subsection
(a)(vi) of this Section 2.3, such Holder will forthwith discontinue the
disposition of Registrable Securities pursuant to the
12
<PAGE> 15
registration statement relating to such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (a)(vi) of this Section 2.3 and, if so any directed
by the Company, will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus relating to such Registrable Securities at the time of receipt of
such notice; provided, that if the registration statement is for an underwritten
offering, such Holder will use its best efforts to cause the underwriters of
such offering to discontinue the disposition of Registrable Securities. In the
event the Company shall give any such notice, the period referred to in
subsection (a)(ii) of this Section 2.3 shall be extended by the length of the
period from and including the date when each seller of any Registrable
Securities covered by such registration statement shall have received such
notice to the date on which each such seller has received the copies of the
supplemented or amended prospectus contemplated by subsection (a)(vi) of this
Section 2.3.
2.4. Preparation; Reasonable Investigation. In connection
with the preparation and filing of each registration statement registering
Registrable Securities, the Company will give the Holders on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company and its subsidiaries with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such Holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act, provided, that the
Company shall not be required to comply with this Section 2.4 with respect to
any material information, the delivery of which in the judgment of the Company
reasonably exercised, is reasonably likely to result in the loss of any
attorney-client privilege of the Company covering such information.
2.5. Indemnification. (a) In the event of any registration
of any securities of the Company pursuant to Sections 2.1, 2.2 or 2.3(b), the
Company will, and hereby does, indemnify and hold harmless each selling Holder,
its directors, officers, partners, employees, representatives and affiliates,
each officer and director of each
13
<PAGE> 16
underwriter, each other person who participates as an underwriter in the
offering or sale of such securities and each other person, if any, who controls
such Holder or any such underwriter within the meaning of the Securities Act
(each an "Indemnified Person") against any losses, claims, damages, liabilities
and expenses (including reasonable legal fees and expenses and costs of
investigation), joint or several, to which such Indemnified Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered or qualified under the Securities Act or
otherwise, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein or incident to any such registration or
qualification, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any violation by the Company of the Securities
Act applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration or qualification or compliance
thereunder; and the Company will reimburse each Indemnified Person for any legal
or any other expenses reasonably incurred by it in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided
that the Company shall not be liable to such Indemnified Person in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement or any documents
incorporated by reference in any of the above in reliance upon and in conformity
with written information furnished by such Indemnified Person to the Company and
designated in writing by such Person to be specifically for use in the
preparation thereof, provided, further that the Company shall not be liable to
any Indemnified Person who participates as an underwriter in the offering or
sale of Registrable Securities or to any other Indemnified Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof), or expense arises out of such Indemnified
Person's failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the person asserting the
14
<PAGE> 17
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or omission was
corrected in full in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Person and shall survive the transfer of such securities by such
Indemnified Person.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2.3(a)(i), that the Company shall have received an undertaking satisfactory to
it from the Holder of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subsection
(a) of this Section 2.5) the Company, each director of the Company, each
officer of the Company who shall sign such registration statement, each
affiliate of the Company and each other person, if any, who controls the Company
within the meaning of the Securities Act, with respect to any statement in or
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto or any documents incorporated by reference in any of the
above, if such statement or omission was made solely in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Holder stating that it is specifically for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling person and
shall survive the transfer of such Registrable Securities by such Holder,
provided, however, that a Holder's liability hereunder shall not exceed the
aggregate net offering proceeds received by such Holder from the sale of such
Registrable Securities.
(c) If the indemnification provided for in this Section 2.5 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or action in respect thereof
referred to herein, then the indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities, expenses or actions in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand, and the
indemnified party on the other, in connection with the statement or omissions
which resulted in such losses, claims, damages,
15
<PAGE> 18
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Holders agree that it would not be
just and equitable if contributions pursuant to this Section were determined by
pro rata allocation or by any other method of allocation which did not take
account the equitable considerations referred to herein. The amount paid or
payable to an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above, shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Section, in no event shall
the amount contributed by any Holder exceed the aggregate net offering proceeds
received by such Holder from the sale of Registrable Securities. No person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
(d) Promptly after receipt by an indemnified party of notice
of the commencement of any action or proceeding involving a claim referred to in
this Section 2.5, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, give written notice to the latter of
the commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying party
of its obligations under the preceding subsections of this Section 2.5, except
to the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof;
16
<PAGE> 19
provided, however, that if the indemnified party or parties reasonably determine
that there may be a conflict between the positions of the indemnifying party or
parties and of the indemnified party or parties in conducting the defense of
such action or proceeding or that there may be legal defenses available to such
indemnified party or parties different from or in addition to those available to
the indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties (and the indemnifying party or parties shall bear
the reasonable legal and other expenses incurred in connection therewith). No
indemnifying party will, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. No indemnified party shall consent to entry of any judgment or enter
into any settlement of any such action the defense of which has been assumed by
an indemnifying party without the consent of such indemnifying party.
(e) Indemnification similar to that specified in the preceding
subsections of this Section 2.5 (with appropriate modifications) shall be given
by the company and each Holder of Registrable Securities with respect to any
required registration or other qualification of such Securities under any
federal or state law or any regulation of governmental authority other than the
Securities Act.
3. MISCELLANEOUS.
3.1. Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it under the Securities
Act and the Exchange Act (or, if the Company is not required to file such
reports, will, upon the request of any Holder, make publicly available other
information), and will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder (i) a written statement as to whether it
has complied with such
17
<PAGE> 20
requirements; (ii) if applicable, a copy of the most recent annual or quarterly
report of the Company; and (iii) such other reports and documents as a Holder
may reasonably request to avail itself of Rule 144A or any other rule or
regulation of the Commission allowing a Holder to sell Common Stock without
registration.
3.2. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Holders of 80% or more of
the Registrable Securities then outstanding. Each Holder shall be bound by any
consent authorized by this Section 3.2.
3.3. Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Agreement may be
assigned by a Holder to a transferee or assignee of such securities in
accordance with the terms of the Shareholders' Agreement who, after such
assignment or transfer, holds at least 5% of Registrable Securities then
outstanding (subject to appropriate adjustments for stock splits, stock
dividends, combinations and other recapitalizations), provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act. Any such assignee shall be
subject to all rights and obligations hereunder and shall agree in writing to be
bound by the terms of this Agreement. The 5% threshold referenced above shall
not apply to transfers and assignments to another Holder; to partners or retired
partners of a Holder which is a partnership (including spouses and ancestors,
lineal descendants and siblings of such partners or spouses who acquire
Registrable Securities by gift, will or intestate succession); to beneficiaries
of a Holder which is a trust; or, with respect to a Holder who is a natural
person, the ancestors, descendants or spouse of such person or a trust for any
of their benefit; provided that all such assignees and transferees who do not
meet the 5% threshold shall appoint a single Holder as their attorney-in-fact
for the purpose of exercising any rights, receiving notices or taking any action
under this Agreement.
3.4. Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the
18
<PAGE> 21
Company shall not enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or prospective
holder to include such securities as Registrable Securities under this Agreement
except as expressly provided herein, subject to the provisions of Section 2.3(b)
hereof, or which would provide such holder or prospective holder with
registration rights more favorable than the rights granted to the Holders under
this Agreement, in any case, without the written consent of the Holders of a
majority of the Registrable Securities.
3.5. Specific Performance. Inasmuch as the shares of capital
stock of the Company are closely held and the market therefor is limited,
irreparable damage would result if this Agreement were not specifically
enforced. Therefore, the rights granted to the Holders hereunder shall be
enforceable in a court of equity by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
3.6. Notices. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be delivered, if to a party other than the Company, to such party in the
manner set forth in the Shareholders' Agreement or at such other address as such
party shall have furnished to the Company in writing, or, if to the Company, at
the Company's principal executive offices, to the attention of its Secretary, or
at such other address, or to the attention of such other officer, as the Company
shall have furnished to each Holder.
3.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto.
3.8. Entire Agreement. This Agreement embodies the entire
agreement and understanding between each Holder and the Company and supersedes
all prior agreements and understandings relating to the subject matter hereof.
3.9. Termination. This Agreement shall terminate on the tenth
anniversary of the date hereof, and shall survive the earlier termination of the
Shareholders' Agreement, provided that any indemnification obligations hereunder
shall survive the termination of this Agreement.
19
<PAGE> 22
3.10. Gender; Number. Unless the context of this Agreement
otherwise requires, the masculine, feminine or neuter gender shall include the
other genders, and the singular shall include the plural.
3.11 Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the law of the State of New York.
3.12 Jurisdiction. By its execution and delivery of this
Agreement, each of the parties hereby irrevocably submits to the non-exclusive
jurisdiction (both subject matter and personal) of the courts of the State of
New York and the United States District Court for the Southern District of New
York in any legal action or proceeding arising out of or relating to this
Agreement. Each of the parties which are not resident in the State of New York
hereby designates and appoints the Company as its authorized agent to accept and
acknowledge on its behalf service of any and all process which may be served in
any suit, action or proceeding in the State of New York, and any service or
process upon such agent shall be deemed in every respect effective service upon
such party. Nothing herein shall affect the right of any party to commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction or to serve process in any other manner permitted by applicable
law.
3.13 Headings. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
3.14 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed on the date first written above.
O.S.I. CORPORATION
By: /s/ JOHN D. FRUTH
-------------------------------
Name: John D. Fruth
Title: President
20
<PAGE> 23
GALEN PARTNERS, L.P.
By: BGW Partners, L.P.
its General Partner
By: /s/ Bruce F. Wesson
-------------------------------
Name: Bruce F. Wesson
Title: General Partner
GALEN PARTNERS INTERNATIONAL,
L.P.
By: BGW Partners, L.P.
its General Partner
By: /s/ Bruce F. Wesson
-------------------------------
Name: Bruce F. Wesson
Title: General Partner
ALLERGAN, INC.
By: /s/ FRANCIS R. TUNNEY, JR.
-------------------------------
Name: Francis R. Tunney, Jr.
Title: Corporate Vice-President,
Secretary and General
Counsel
21
<PAGE> 24
/s/ JOHN FRUTH
-------------------------------
JOHN FRUTH
/s/ ANTHONY GALLEY
-------------------------------
ANTHONY GALLEY
/s/ ANITA HALL
-------------------------------
ANITA HALL
-------------------------------
RONALD HANSMAN
/s/ GEOFFREY GALLEY
-------------------------------
GEOFFREY GALLEY
/s/ ALBERT MORLAND
-------------------------------
ALBERT MORLAND
/s/ BARRIE BEVIS
-------------------------------
BARRIE BEVIS
/s/ IVOR ATKINSON
-------------------------------
IVOR ATKINSON
22
<PAGE> 1
EXHIBIT 4.02
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
AND SHAREHOLDERS' AGREEMENT
This Amendment (the "AMENDMENT") is entered into as of February 27, 1997,
by and among O.S.I. Corporation, a California corporation (the "Company") and
the other persons and entities whose names are set forth on the signature pages
hereto. This Amendment amends that certain Registration Rights Agreement dated
as of October 30,1992 (the "REGISTRATION RIGHTS AGREEMENT") and that certain
Shareholders Agreement also dated as of October 30, 1992 (the "SHAREHOLDERS'
AGREEMENT"), each by and among the Company and the other parties listed on the
signature pages thereto.
R E C I T A L S
WHEREAS, on October 30, 1992, the Company and certain of the investors and
shareholders in the Company entered into the Registration Rights Agreement and
the Shareholders' Agreement;
WHEREAS, pursuant to a Settlement Agreement and Release dated as of
February __, 1997 by and among Geoffrey H. Galley, Anthony D. Galley, Barrie
Bevis, Albert H. Morland and Ivor Atkinson (collectively, the "Shareholders"),
the Company and certain other parties, the Company has agreed to provide the
Shareholders with certain priority on registration rights, and the Shareholders
have agreed to place their shares of Company stock in a voting trust, among
other things;
WHEREAS, the parties hereto desire to amend the Registration Rights
Agreement and Shareholders Agreement to assist in the implementation of the
foregoing.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Priority Registration Rights. The following paragraph shall be
added to the Registration Rights Agreement:
"3.16 Rights of Certain Holders upon Initial Public Offering.
Notwithstanding anything to the contrary herein, no other Holders shall be
allowed to register any Registrable Securities in a registration related to the
Company's Initial Public Offering (including, but not limited to, a registration
initiated pursuant to section 2.1 herein) or any subsequent public offering
unless each of Geoffrey H. Galley, Anthony D. Galley, Barrie Bevis, Albert H.
Morland and Ivor Atkinson (the "PRIORITY HOLDERS") have been allowed to register
at least fifty percent (50%) of the Registrable Securities held by each such
Holder at the time of the Company's Initial Public Offering. For the avoidance
of doubt it is acknowledged that there can be no assurance that the Priority
Holders will be able to sell any shares in an Initial Public Offering, as this
will
<PAGE> 2
depend on the market conditions at such time. Rather, the Company's commitment
is that no other Holder will be permitted to sell any shares in an Initial
Public Offering unless the Priority Holders have each been permitted to include
up to 50% of their Registrable Shares in the registration.
2. Market Lock-up. The Shareholders agree to not sell or otherwise
transfer any of their shares in the Company not included in the Company's
initial public offering for a period of 180 days after such offering, so long as
the Company's officers, directors and greater than 5% shareholders agree to be
similarly bound. The Shareholders agree to enter into a reasonable "market
lock-up" agreement with the Company's underwriter to implement the foregoing.
3. Consent to Voting Trust. The undersigned hereby consent to the transfer
of the Shareholders' shares pursuant to the Voting Trust Agreement and
acknowledge that the Shareholders shall retain their registration rights as to
such shares, as set forth in the Registration Rights Agreement, as amended
hereby, and that the voting provisions of the Voting Trust shall take precedence
over the voting provisions of the Shareholders' Agreement.
4. Amendment of Shareholders Agreement. So much of Section 4.10 of
the Shareholders Agreement, which currently reads as follows:
"may not be amended, modified or discharged except by an instrument
in writing signed by (i) the Company, (ii) each holder of 15% or more of the
shares of Restricted Stock then outstanding, and (iii) a majority of the other
holders of Restricted Stock then outstanding, in each case on an as converted
and if exercised basis."
is hereby amended and restated to read as follows:
"may not be amended, modified or discharged except by an instrument
in writing signed by (i) the Company, (ii) each holder of 15% or more of the
shares of Restricted Stock then outstanding, and (iii) holders of a majority of
the shares of Restricted Stock then outstanding, in each case on an as converted
and if exercised basis."
5. No Other Effects. Except as set forth herein, the Registration
Rights Agreement and Shareholders Agreement shall remain in full force and
effect.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
7. Entire Agreement. This Amendment constitutes the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior understandings and agreements with respect to
such matters.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
O.S.I. CORPORATION
By: /s/ John D. Fruth
--------------------------------------
John D. Fruth, President
GALEN PARTNERS, L.P.
By: BGW Partners, L.P.,
its General Partner
By: /s/ William Grant
---------------------------------
Name: William Grant
---------------------------------
Title: General Partner
GALEN PARTNERS INTERNATIONAL, L.P.
By: BGW PARTNERS, L.P.
its General Partner
By: /s/ William Grant
---------------------------------
Name: William Grant
---------------------------------
Title: General Partner
ALLERGAN, INC.
By: /s/ Francis R. Tunney, Jr.
--------------------------------------
Name: Francis R. Tunney, Jr.
Title: Corporate Vice-President,
Secretary and General
Counsel
[AMENDMENT TO REGISTRATION RIGHTS AGREEMENT AND SHAREHOLDERS AGREEMENT]
3
<PAGE> 4
/s/ JOHN D. FRUTH
--------------------------------------
JOHN D. FRUTH
/s/ ANTHONY GALLEY
--------------------------------------
ANTHONY GALLEY
--------------------------------------
ANITA HALL
--------------------------------------
RONALD HANSMAN
/s/ GEOFFREY GALLEY
--------------------------------------
GEOFFREY GALLEY
/s/ ALBERT MORLAND
--------------------------------------
ALBERT MORLAND
/s/ BARRIE BEVIS
--------------------------------------
BARRIE BEVIS
/s/ IVOR ATKINSON
--------------------------------------
IVOR ATKINSON
[AMENDMENT TO REGISTRATION RIGHTS AGREEMENT AND SHAREHOLDERS AGREEMENT]
<PAGE> 1
EXHIBIT 10.01
O.S.I. CORPORATION
1989 STOCK OPTION PLAN
As Adopted July 21, 1989
As Amended November 30, 1994
1. PURPOSE. This 1989 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of O.S.I. CORPORATION (the "Company").
Capitalized terms not previously defined herein are defined in Section 17 of
this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"),
or (b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the Common Stock of the Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be
issued pursuant to Options granted under this Plan is 1,469,032 Shares, subject
to adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Options shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers,
directors, consultants, independent contractors and advisors (provided such
consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction) of the Company or any Parent, Subsidiary or Affiliate of the
Company (as defined in Section 17). ISOs may be granted only to employees
(including officers and directors who are also employees) of the Company or a
Parent or Subsidiary of the Company. The Committee (as defined in Section 14) in
its sole discretion shall select the recipients of Options ("Optionees"). An
Optionee may be granted more than one Option under this Plan. The Company may
also, from time to time, assume outstanding options granted by another company,
whether in connection with an acquisition of such other company or otherwise, by
either (i) granting an option under this Plan in replacement of the option
assumed by the Company, or (ii) treating the assumed option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an option granted under this Plan. Such assumption shall be permissible if the
holder of the assumed option would have been eligible to be granted an option
hereunder if the other company had applied the rules of this Plan to such grant.
<PAGE> 2
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in such form
(which need not be the same for each Optionee) as the Committee shall from time
to time approve.
(b) Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to the Optionee with a copy of this Plan within a reasonable time
after the date of grant.
(c) Exercise Price. The exercise price of an NQSO shall be not
less than 85% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of an ISO shall be not less than 100% of the Fair
Market Value of the Shares on the date the Option is granted. The exercise price
of any ISO granted to a person owning more than l0% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall not be less than 110% of the Fair
Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further that no
ISO granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
(e) Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are exercisable for the
first time by an Optionee during any calendar year exceeds $100,000, the Options
for the first $100,000 worth of stock to become exercisable in such year shall
be ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the IRC or the
regulations promulgated thereunder are amended after the effective date of this
Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan,
and any interest therein, shall not be transferrable or assignable by the
Optionee, and may not be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionee only by the Optionee;
provided that NQSOs held by an Optionee who is not an officer or director of the
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<PAGE> 3
Company or other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may be transferred to such family
members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such Option.
(g) Assumed Options. In the event the Company assumes an
option granted by another company, the terms and conditions of such option shall
remain unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
425(c) of the Code.) In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 4), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by
check) or, where approved by the Committee in its sole discretion at the time of
grant and where permitted by law: (i) by cancellation of indebtedness of the
Company to the Optionee; (ii) by surrender of shares of Common Stock of the
Company that have been owned by the Optionee for more than six (6) months (and
which have been paid for within the meaning of SEC Rule 144 and, if such Shares
were purchased from the Company by use of a promissory note, such note has been
fully paid with respect to such shares) or were obtained by the Optionee in the
open public market having a Fair Market Value equal to the exercise price of the
Option; (iii) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate sufficient to
avoid imputation of income under Sections 483 and 1274 of the Code, provided
that the portion of the exercise price equal to the par value of the Shares, if
any, must be paid in cash or other legal consideration; (iv) by waiver of
compensation due or accrued to Optionee for services rendered; (v) provided that
a public market for the Company's stock exists, through a "same day sale"
commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise this Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (vi) provided that a public market for the Company's
stock exists, through a "margin" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise this Option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer
3
<PAGE> 4
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (vii) by any combination of the foregoing. Optionees
who are not employees or directors of the Company shall not be entitled to
purchase Shares with a promissory note unless the note is adequately secured by
collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable. Where
approved by the Committee in its sole discretion, the Optionee may provide for
payment of withholding taxes upon exercise of the Option by requesting that the
Company retain Shares with a Fair Market Value equal to the minimum amount of
taxes required to be withheld. In such case, the Company shall issue the net
number of Shares to the Optionee by deducting the Shares retained from the
Shares exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by
Optionees to have Shares withheld for this purpose shall be made in writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) once made, the election shall be irrevocable as
to the particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent
or disapproval of the Committee;
(iv) if the Optionee is an Insider, and if the
Company is subject to Section 16(b) of the Exchange Act, the election may not be
made within six (6) months of the date of grant of the Option; provided,
however, that this limitation shall not apply in the event that death or
disability of the Optionee occurs prior to the expiration of the six (6) month
period; and
(v) if the Optionee is an Insider, and if the
Company is subject to Section 16(b) of the Exchange Act, the election must be
made either six (6) months prior to the Tax Date or in the 10-day period
beginning on the third day following the public release of the Company's
quarterly or annual summary statement of operations.
In the event the election to have Shares withheld is made by an
Optionee who is an Insider and the Tax Date is deferred until six months after
exercise of the Option because no election is filed under Section 83(b) of the
Code, the Optionee shall receive the full number of Shares with respect to which
the Option is exercised, but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
(d) Limitations on Exercise. Notwithstanding the
exercise periods set forth in the Grant, exercise of an Option shall always
be subject to the following limitations:
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<PAGE> 5
(i) If an Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, the Optionee may exercise such Optionee's ISOs to
the extent (and only to the extent) that it would have been exercisable upon the
date of termination, within three (3) months after the date of termination (or
such shorter time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section 16(b) of the
Exchange Act, the Optionee's Option will be exercisable for a period of time
sufficient to allow such Optionee from having a matching purchase and sale under
Section 16(b), with any extension beyond three (3) months from termination of
employment deemed to be as an NQSO, and provided further that in no event may an
Option be exercisable later than the expiration date of the Option.
(ii) If an Optionee's employment with the Company or
any Parent, Subsidiary or Affiliate of the Company is terminated because of the
death of the Optionee or disability of Optionee, such Optionee's Options may be
exercised to the extent (and only to the extent) that they would have been
exercisable by the Optionee on the date of termination, by the Optionee (or the
Optionee's legal representative) within twelve (12) months after the date of
termination, but in any event no later than the expiration date of the Options;
provided, however, that in the event of termination due to disability other than
as defined in Section 22(e)(3) of the code, any ISO that remains exercisable
after 90 days after the date of termination shall be deemed an NQSO.
(iii) The Committee shall have discretion to
determine whether the Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated.
(iv) In the case of an Optionee who is a director,
independent consultant, contractor or advisor, the Committee will have the
discretion to determine whether the Optionee is "employed by the Company or any
Parent, Subsidiary or Affiliate of the Company" pursuant to the foregoing
Sections.
(v) The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
(vi) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended (the "1933
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of exercise. The Company shall be under no
obligation to register the Shares with the Securities and Exchange Commission
("SEC") or to effect compliance with the registration, qualification or listing
requirements of any state securities laws or stock exchange, and the Company
shall have no liability for any inability or failure to do so.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to
5
<PAGE> 6
purchase all Shares that an Optionee (or a subsequent transferee) may propose to
transfer to a third party and/or (b) a right to repurchase a portion of or all
Shares held by an Optionee upon the Optionee's termination of employment or
service with the Company or its Parent, Subsidiary or Affiliate of the Company
for any reason within a specified time as determined by the Committee at the
time of grant at (i) the Optionee's original purchase price, (ii) the Fair
Market Value of such Shares or (iii) a price determined by a formula or other
provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee
shall have the power to modify, extend or renew outstanding Options and to
authorize the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of the Optionee, impair any
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in accordance
with Section 425(h) of the Code. The Committee shall have the power to reduce
the exercise price of outstanding options; provided, however, that the exercise
price per share may not be reduced below the minimum exercise price that would
be permitted under Section 5(c) of this Plan for options granted on the date the
action is taken to reduce the exercise price.
9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee,
annually during the period for which such Optionee has one or more Options
outstanding a copy of the financial statements of the Company, consisting of, at
a minimum, a balance sheet and an income statement. The Company shall not be
required to provide such information to key employees whose duties in connection
with the Company assure their access to equivalent information.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of, or other relationship with, the Company or any Parent, Subsidiary
or Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
of Directors (the "Board") or shareholders of the Company and compliance with
applicable securities laws; provided, however, that a fractional share shall not
be issued upon exercise of any Option and any fractions of a Share that would
have resulted shall either be cashed out at Fair Market Value or the number of
shares issuable under the Option shall be rounded up to the nearest whole
number, as determined by the
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<PAGE> 7
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
12. ASSUMPTION OF OPTIONS BY SUCCESSORS.
12.1 In the event of a dissolution or liquidation of the
Company, a merger in which the Company is not the surviving corporation, the
sale of all or substantially all of the assets of the Company, or any other
transaction which qualifies as a "corporate transaction" under Section 425(a) of
the Code wherein the shareholders of the Company give up all of their equity
interest in the Company (except for the acquisition of all or substantially all
of the outstanding shares of the Company), any or all outstanding Options:
(i) granted before March 1, 1995 shall,
notwithstanding any contrary terms of the Grant, accelerate and become
exercisable in full at least ten days prior to and shall expire on, (and, if the
Company has reserved to itself a right to repurchase shares issued upon exercise
of Options at the original purchase price of such shares, such right shall
terminate upon), the consummation of such dissolution, liquidation, merger or
sale of assets at such times and on such conditions as the Committee shall
determine unless a successor corporation assumes the outstanding Options,
provides substantially similar consideration to such option holder as was
provided to the shareholders (after taking into account the existing provisions
of the option holders' options) or substitutes substantially equivalent options
and, in the case of outstanding shares subject to such repurchase option, issues
substantially similar shares subject to restrictions no less favorable to the
Optionee. The aggregate Fair Market Value (determined at the time an Option is
granted) of stock with respect to all ISOs held by an Optionee that first become
exercisable in the calendar year of such dissolution, liquidation, merger, sale
of stock or sale of assets may not exceed $100,000. If the Fair Market Value of
stock with respect to which all ISOs are first exercisable in such calendar year
exceeds $100,000, the Options for the first $100,000 worth of stock to become
exercisable in that year shall be ISOs and the Options for the amount in excess
of $100,000 shall be NQSOs.
(ii) granted on or after March 1, 1995 may be
assumed or replaced by the successor corporation, which assumption shall be
binding on all Optionees. In the alternative, the successor corporation may
substitute an equivalent option or provide substantially similar consideration
to Optionees as was provided to shareholders (after taking into account the
existing provisions of such Optionees' options, such as the exercise price and
the vesting schedule). The successor corporation may also issue, in place of
outstanding shares of the Company held by Optionee as a result of the exercise
of an Option that is subject to repurchase, substantially similar shares or
other property subject to similar repurchase restrictions no less favorable to
Optionee. In the event such successor corporation, if any, refuses to assume or
substitute Options, as provided above, or there is no successor corporation, and
if the Company is ceasing to exist as a separate corporate entity, the Options
shall, notwithstanding any contrary terms in the Grant, expire on a date at
least 20 days after the Board gives written notice to Optionees specifying the
terms and conditions of such termination.
12.2 Additional Provisions. Subject to the foregoing
provisions of this Section 12, in the event of the occurrence of any transaction
described in this first paragraph of
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<PAGE> 8
this Section 12, any outstanding Option shall be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become
effective on the date that it is adopted by the Board of the Company. This Plan
shall be approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve months before or after the date this
Plan is adopted by the Board. Thereafter, no later than twelve (12) months after
the Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 with respect to shareholder
approval.
14. ADMINISTRATION. This Plan may be administered by the Board or a
Committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, a majority of the Board is not comprised of
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than three persons (who need not be members of the Board), each of whom is
a Disinterested Person. As used in this Plan, references to the "Committee"
shall mean either such Committee or the Board if no committee has been
established. After registration of the Company under the Exchange Act, Board
members who are not Disinterested Persons may not vote on any matters affecting
the administration of this Plan or on the grant of any Options pursuant to this
Plan to Insiders, but any such member may be counted for determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options or administration of this Plan and may vote on the grant
of any Options pursuant to this Plan otherwise than to Insiders. The
interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option. The Committee may delegate the authority to grant Options under this
Plan to Optionees who are not Insiders of the Company to officers of the
Company.
15. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date on which this Plan
is adopted by the Board.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of Grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the holders of a majority of the outstanding voting shares of
the Company, amend this Plan in any manner that requires such shareholder
approval pursuant to the IRC or the regulations promulgated thereunder as such
provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or
its successor) promulgated thereunder.
17. CERTAIN DEFINITIONS. As used in this Plan, the following
terms shall have the following meanings:
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<PAGE> 9
(a) "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
(d) "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(d)(3) as promulgated by the SEC under Section 16(b) of the Exchange
Act, as such rule is amended from time to time and as interpreted by the SEC.
(e) "Fair Market Value" shall mean the fair market value of
the Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or on the NASDAQ National
Market System, the Fair Market Value shall be the closing price on such exchange
or quotation system on the last trading day prior to the date of determination.
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<PAGE> 1
EXHIBIT 10.02
O.S.I. CORPORATION
1992 OFFICERS AND DIRECTORS STOCK OPTION PLAN
As Adopted September 30, 1992
1. PURPOSE. This 1992 Officers and Directors Stock option Plan
("Plan") is established as a compensatory plan to attract, retain and provide
equity incentives to selected persons to promote the financial success of O.S.I.
CORPORATION (the "Company"). Capitalized terms not previously defined herein are
defined in Section 12 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
(the "Options") may be either (a) incentive stock options ("ISOs") within the
meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time
of grant. The shares of stock that may be purchased upon exercise of Options
granted under this Plan (the "Shares") are shares of the Common Stock of the
Company.
3. NUMBER OF SHARES. The aggregate number of Shares that may be
issued pursuant to Options granted under this Plan is 160,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Options shall not be available for future grant and purchase under
this Plan. At all times during the term of this Plan, the Company shall reserve
and keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to officers and directors of
the Company or any Parent, Subsidiary or Affiliate of the Company (as defined in
Section 12). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or a Parent or Subsidiary of
the Company. The Committee (as defined in Section 15) in its sole discretion
shall select the recipients of options ("Optionees"). An Optionee may be granted
more than one option under this Plan.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
<PAGE> 2
(a) Form of Option Grant. Each Option granted under this
Plan shall be evidenced by a written Stock Option Grant (the "Grant") in such
form (which need not be the same for each Optionee) as the Committee shall from
time to time approve.
(b) Date of Grant. The date of grant of an Option shall be
the date on which the Committee makes the determination to grant such Option
unless otherwise specified by the Committee. The Grant representing the Option
will be delivered to the Optionee with a copy of this Plan within a reasonable
time after the date of grant.
(c) Exercise Price. The exercise price of a NQSO shall be
not less than 85% of the Fair Market Value of the Shares on the date the Option
is granted. The exercise price of an ISO shall be not less than 100% of the Fair
Market Value of the Shares on the date the Option is granted. The exercise price
of any ISO granted to a person owning more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall not be less than 110% of the Fair
Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further that no
ISO granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
(e) Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are exercisable for the
first time by an Optionee during any calendar year exceeds $100,000, the Options
for the first $100,000 worth of stock to become exercisable in such year shall
be ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the IRC or the
regulations promulgated thereunder are amended after the effective date of this
Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any options granted after the effective date of such
amendment.
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<PAGE> 3
(f) Options Non-Transferable. Options granted under this
Plan, and any interest therein, shall not be transferable or assignable by the
Optionee, and may not be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionee only by the Optionee;
provided that NQSOs held by an Optionee who is not an officer or director of the
Company or other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may be transferred to such family
members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such option.
6. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by
check) or, where approved by the Committee in its sole discretion at the time of
grant and where permitted by law: (i) by cancellation of indebtedness of the
Company to the Optionee; (ii) by waiver of compensation due or accrued to
Optionee for services rendered; (iii) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
this Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (iv) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise this option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (v) by any combination of the foregoing.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding
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<PAGE> 4
obligations of the Company, if applicable. Where approved by the Committee in
its sole discretion, the Optionee may provide for payment of withholding taxes
upon exercise of the Option by requesting that the Company retain Shares with a
Fair Market Value equal to the minimum amount of taxes required to be withheld.
In such case, the Company shall issue the net number of Shares to the Optionee
by deducting the Shares retained from the Shares exercised. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined in accordance with Section 83
of the Code (the "Tax Date"). All elections by Optionees to have Shares withheld
for this purpose shall be made in writing in a form acceptable to the Committee
and shall be subject to the following restrictions:
(i) the election must be made on or prior to
the applicable Tax Date;
(ii) once made, the election shall be
irrevocable as to the particular Shares as to which the election is made;
(iii) all elections shall be subject to the
consent or disapproval of the Committee;
(iv) if the Optionee is an Insider, and if
the Company is subject to Section 16(b) of the Exchange Act, the election may
not be made within six (6) months of the date of grant of the Option; provided,
however, that this limitation shall not apply in the event that death or
disability of the Optionee occurs prior to the expiration of the six (6) month
period; and
(v) if the Optionee is an Insider, and if
the Company is subject to Section 16(b) of the Exchange Act, the election must
be made either six (6) months prior to the Tax Date or in the 10-day period
beginning on the third day following the public release of the Company's
quarterly or annual summary statement of operations.
In the event the election to have Shares withheld is made by an
Optionee who is an Insider and the Tax Date is deferred until six months after
exercise of the Option because no election is filed under Section 83(b) of the
Code, the optionee shall receive the full number of Shares with respect to which
the Option is exercised, but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or
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<PAGE> 5
(b) a right to repurchase a portion of or all Shares held by an Optionee upon
the Optionee's termination of employment or service with the Company or its
Parent, Subsidiary or Affiliate of the Company for any reason within a specified
time as determined by the Committee at the time of grant at (i) the optionee's
original purchase price, (ii) the Fair Market Value of such Shares or (iii) a
price determined by a formula or other provision set forth in the Grant.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee
shall have the power to modify, extend or renew outstanding Options and to
authorize the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of the Optionee, impair any
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in accordance
with Section 425(h) of the Code. The Committee shall have the power to reduce
the exercise price of outstanding options; provided, however, that the exercise
price per share may not be reduced below the minimum exercise price that would
be permitted under Section 5(c) of this Plan for options granted on the date the
action is taken to reduce the exercise price.
9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan. The Company shall provide to each Optionee a
copy of the annual financial statements of the Company, at such time after the
close of each fiscal year of the Company as such statements are released by the
Company to its shareholders.
10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of, or other relationship with, the Company or any Parent, Subsidiary
or Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share
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<PAGE> 6
of such Options shall be proportionately adjusted, subject to any required
action by the Board of Directors (the "Board") or shareholders of the Company
and compliance with applicable securities laws; provided, however, that a
fractional share shall not be issued upon exercise of any Option and any
fractions of a Share that would have resulted shall either be cashed out at Fair
Market Value or the number of shares issuable under the Option shall be rounded
up to the nearest whole number, as determined by the Committee; and provided
further that the exercise price may not be decreased to below the par value, if
any, for the Shares.
12. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
(a) "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
(d) "Fair Market Value" shall mean the fair market value of
the Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or on the NASDAQ National
Market System, the Fair Market Value shall be the closing price on such exchange
or quotation system on the last trading day prior to the date of determination.
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<PAGE> 1
EXHIBIT 10.03
OCULAR SCIENCES, INC.
1997 EQUITY INCENTIVE PLAN
As Adopted May 10, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,000,000 Shares. Subject to Sections 2.2 and 18,
Shares that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
are subject to an Award granted hereunder but are forfeited or are repurchased
by the Company at the original issue price; or (c) are subject to an Award that
otherwise terminates without Shares being issued, will again be available for
grant and issuance in connection with future Awards under this Plan. Any
authorized shares not issued or subject to outstanding grants under the
Company's 1989 Stock Option Plan (the "PRIOR PLAN") on the Effective Date (as
defined below) and any shares that are issuable upon exercise of options granted
pursuant to the Prior Plan that expire or become unexercisable for any reason
without having been exercised in full, will no longer be available for grant and
issuance under the Prior Plan, but will be available for grant and issuance
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan. The sum of (a) Restricted Stock Awards,
(b) Stock Bonus Awards, or (c) Options with a Purchase Price or Exercise Price,
as the case may be, below Fair Market Value issued under this Plan may not
exceed 20% of the total number of Shares reserved for grant and issuance
pursuant to this Plan as of any date.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 600,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company) who are eligible to receive
up to a maximum of 800,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
<PAGE> 2
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
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<PAGE> 3
5.3 Exercise Period. Options may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after
a Termination other than because of Participant's death or
disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any such
exercise beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months after
the Termination Date when the Termination is for Participant's
death or Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
(c) If a Participant is determined by the Board to have committed an
act of theft, embezzlement, fraud, dishonesty or a breach of
fiduciary duty to the Company or Subsidiary, neither the
Participant, the Participant's estate nor such other person who
may then hold the Option shall be entitled to exercise any Option
with respect to any Shares whatsoever, after termination of
service, whether or not after termination of service the
Participant may receive payment from the Company or Subsidiary for
vacation pay, for
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<PAGE> 4
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of notice,
or for any other benefits. In making such determination, the Board
shall give the Participant an opportunity to present to the Board
evidence on his behalf. For the purpose of this paragraph,
termination of service shall be deemed to occur on the date when
the Company dispatches notice or advice to the Participant that
his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISO and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISO, such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted.
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<PAGE> 5
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance Periods
may overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent or Subsidiary
of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature, length
and starting date of any Performance Period for each Stock Bonus; (b) select
from among the Performance Factors to be used to measure the performance, if
any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
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<PAGE> 6
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are not
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to
pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the
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<PAGE> 7
Shares to be issued that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld, determined on the date that the
amount of tax to be withheld is to be determined. All elections by a Participant
to have Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form acceptable
to the Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's original Purchase Price pursuant to Section
12.
10.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory
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<PAGE> 8
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve. The Shares purchased with the promissory note
may be released from the pledge on a pro rata basis as the promissory note is
paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Board will determine, provided, however, that the Board may, in its sole
discretion, provide that the vesting of any or all Awards granted pursuant to
this Plan will accelerate. If the Board exercises such discretion with respect
to options, such options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Board
determines, and if such options
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<PAGE> 9
are not exercised prior to the consummation of the corporate transaction, they
shall terminate in accordance with the provisions of this Plan.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Board may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; and (c) in the event that stockholder approval of such increase is not
obtained within the time period provided herein, all Awards granted hereunder
will be canceled, any Shares issued pursuant to any Award will be canceled, and
any purchase of Shares hereunder will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
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<PAGE> 10
23. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Ocular Sciences, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
Street Journal;
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock pursuant
to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
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<PAGE> 11
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this Ocular Sciences, Inc. 1997 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken
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<PAGE> 12
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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<PAGE> 1
EXHIBIT 10.04
OCULAR SCIENCES, INC.
1997 DIRECTORS STOCK OPTION PLAN
As Adopted May 10, 1997
1. PURPOSE. This 1997 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for nonemployee members of the Board of
Directors of Ocular Sciences, Inc. (the "COMPANY"), who are described in Section
6.1 below, by granting such persons options to purchase shares of stock of the
Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by
the Board of Directors of the Company (the "BOARD"), this Plan will become
effective on the time and date (the "EFFECTIVE DATE") on which the registration
statement filed by the Company with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to
register the initial public offering of the Company's Common Stock is declared
effective by the SEC. This Plan shall be approved by the stockholders of the
Company, consistent with applicable laws, within twelve (12) months after the
date this Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
shall be non-qualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be
issued pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is
150,000 Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the term
of this Plan, the Company shall reserve and keep available such number of Shares
as shall be required to satisfy the requirements of outstanding Options granted
under this Plan; provided, however that if the aggregate number of Shares
subject to outstanding Options granted under this Plan plus the aggregate number
of Shares previously issued by the Company pursuant to the exercise of Options
granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or
by a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors
of the Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
such person referred to as an "OPTIONEE").
<PAGE> 2
6.2 Initial Grant. Each Optionee who on or after the
Effective Date becomes a member of the Board will automatically be granted an
Option for 15,000 Shares (an "INITIAL GRANT") on the date such Optionee first
becomes a member of the Board.
6.3 Succeeding Grants. On each annual anniversary of an
Optionee's Initial Grant or previous grant (whether or not under this Plan) if
such Optionee was ineligible to receive an Initial Grant, provided the Optionee
is a member of the Board on such anniversary date and has served continuously as
a member of the Board since the date of the Optionee's Initial Grant or previous
grant (whether or not under this Plan), as the case may be, the Optionee will
automatically be granted an Option for 7,500 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this
Plan shall be evidenced by a written Stock Option Grant ("GRANT") in such form
(which need not be the same for each Optionee) as the Committee shall from time
to time approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. Options granted under this Plan shall be
exercisable as they vest. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as
to two and seventy-eight one-hundredths percent (2.78%) of the Shares on the
last day of each month following the start date, so long as the optionee
continuously remains a director or consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will
vest as to two and seventy-eight one-hundredths percent (2.78%) of the Shares
on the last day of each month following the start date, so long as the optionee
continuously remains a director or consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be
the Fair Market Value (as defined in Section 17.4) of the Shares, at the time
that the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest when the Optionee ceases to
be a member of the Board or a consultant of the Company. The date on which the
Optionee ceases to be a member of the Board or a consultant of the Company shall
be referred to as the "TERMINATION DATE". An Option may be exercised after the
Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to
be a member of the Board or consultant of the Company for any reason except
death of the Optionee or disability of the Optionee (whether temporary or
permanent, partial or total, as determined by the Committee), then each Option
then held by such Optionee, to the extent (and only to the extent) that it would
have been exercisable by the Optionee on the Termination Date, may be exercised
by the Optionee no later than seven (7) months after the Termination Date, but
in no event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to
be a member of the Board or consultant of the Company because of the death of
the Optionee or the disability of the Optionee (whether temporary or permanent,
partial or total, as determined by the Committee), then each Option then held by
such Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) no later than twelve (12)
months after the Termination Date, but in no event later than the Expiration
Date.
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section
8.5 below, Options shall be exercisable as they vest.
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<PAGE> 3
8.2 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise
of an Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act and all applicable state
securities laws, as they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum
number of Shares that may be purchased upon any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative, unless otherwise determined by the
Committee. No Option may be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution, unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company at such time
after the close of each fiscal year of the Company as they are released by the
Company to its stockholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price
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<PAGE> 4
per share of such outstanding Options shall be proportionately adjusted, subject
to any required action by the Board or stockholders of the Company and
compliance with applicable securities laws; provided, however, that no
fractional shares shall be issued upon exercise of any Option and any resulting
fractions of a Share shall be rounded up to the nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or
any Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In
the event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and if such options are not exercised prior to the consummation of
the corporate transaction, they shall terminate in accordance with the
provisions of this Plan.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan or any outstanding option, provided that the Board
may not terminate or amend the terms of any outstanding option without the
consent of the Optionee. In any case, no amendment of this Plan may adversely
affect any then outstanding Options or any unexercised portions thereof without
the written consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
17.1 "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
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<PAGE> 5
17.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of
a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as reported
in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common Stock
is listed or admitted to trading as reported in The Wall
Street Journal;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
date of determination as reported in The Wall Street
Journal;
(d) in the case of an Option granted on the Effective Date,
the price per share at which shares of the Company's
Common Stock are initially offered for sale to the
public by the Company's underwriters in the initial
public offering of the Company's Common Stock pursuant
to a registration statement filed with the SEC under the
Securities Act; or
(e) if none of the foregoing is applicable, by the Committee
in good faith.
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<PAGE> 1
EXHIBIT 10.05
OCULAR SCIENCES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
As Adopted May 10, 1997
1. ESTABLISHMENT OF PLAN. Ocular Sciences, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" (collectively,
"PARTICIPATING SUBSIDIARIES") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "CODE").
"Participating Subsidiaries" are Parent Corporations or Subsidiaries that the
Board of Directors of the Company (the "BOARD") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 200,000 shares of the Company's Common Stock is reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Participating Subsidiaries designated by the Board as eligible to
participate in this Plan with a convenient means of acquiring an equity interest
in the Company through payroll deductions, to enhance such employees' sense of
participation in the affairs of the Company and Participating Subsidiaries, and
to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by the Board or by
a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the "Committee"
shall mean either such committee or the Board if no committee has been
established. Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of this Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from time
to time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of this
Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or
Participating Subsidiaries fifteen (15) days before the beginning of such
Offering Period;
(b) unless otherwise determined by the Board with respect to
all employees, employees who have been employed by the Company or Participating
Subsidiaries less than two years;
(c) employees who are customarily employed for less than twenty
(20) hours per week;
(d) employees who are customarily employed for less than five
(5) months in a calendar year;
(e) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the Company
or any of its Participating Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would
<PAGE> 2
own stock or hold options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Participating Subsidiaries; and
(f) individuals who provide services to the Company or any of
its Participating Subsidiaries as independent contractors whether or not
reclassified as common law employees, unless the Company or a Participating
Subsidiary withholds or is required to withhold U.S. Federal employment taxes
for such individuals pursuant to Section 3402 of the Code.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
February 1 and August 1 of each year and ending on July 31 and January 31 of
each year; provided, however, that notwithstanding the foregoing, the Board
shall have the authority to determine the date on which the first such Offering
Period shall commence (the "FIRST OFFERING DATE") and the duration of such
Offering Period. Unless otherwise determined by the Board with respect to the
first Offering Period, each Offering Period shall consist of four (4) six-month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
business day of each Offering Period is referred to as the "OFFERING DATE". The
last business day of each Purchase Period is referred to as the "PURCHASE DATE".
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to offerings without stockholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY DEPARTMENT") not
later than fifteen (15) days before such Offering Date unless a later time for
filing the subscription agreement authorizing payroll deductions is set by the
Board for all eligible employees with respect to a given Offering Period. An
eligible employee who does not deliver a subscription agreement to the Treasury
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Treasury Department not later than fifteen (15) days
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee
in this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (a) the maximum number of shares set by the Board pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (b) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
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<PAGE> 3
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in
good faith.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary that is not in
excess of $250,000 per calendar year, provided however, that for purposes of
determining a participant's base salary, any election by such participant to
reduce his or her regular cash remuneration under Sections 125 or 401(k) of the
Code shall be treated as if the participant did not make such election. Payroll
deductions shall commence on the first payday following the Offering Date and
shall continue to the end of the Offering Period unless sooner altered or
terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of
payroll deductions during an Offering Period by filing with the Treasury
Department a new authorization for payroll deductions, in which case the new
rate shall become effective for the next payroll period commencing more than
fifteen (15) days after the Treasury Department's receipt of the authorization
and shall continue for the remainder of the Offering Period unless changed as
described below. Such change in the rate of payroll deductions may be made at
any time during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
fifteen (15) days before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited
to his or her account under this Plan and are deposited with the general funds
of the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as this Plan remains in
effect and provided that the participant has not submitted a signed and
completed withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest; provided, however that any amount remaining in such
participant's account on a Purchase Date which is less than the
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<PAGE> 4
amount necessary to purchase a full share of Common Stock of the Company shall
be carried forward, without interest, into the next Purchase Period or Offering
Period, as the case may be. In the event that this Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in this Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the
Company shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(f) During a participant's lifetime, such participant's option
to purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under
this Plan at a rate which, when aggregated with his or her rights to purchase
stock under all other employee stock purchase plans of the Company or any
Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering
Date (or such other limit as may be imposed by the Code) for each calendar year
in which the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Prior to
any Purchase Period, the Committee may, in its sole discretion, set a maximum
number of shares which may be purchased by any employee at any single Purchase
Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise determined by the
Committee, there shall be no Maximum Share Amount. In no event shall the Maximum
Share Amount exceed the amounts permitted under Section 10(b) above. If a new
Maximum Share Amount is set, then all participants must be notified of such
Maximum Share Amount prior to the commencement of the Purchase Period to be
affected. Once the Maximum Share Amount is set, it shall continue to apply with
respect to all succeeding Purchase Dates and Offering Periods unless revised by
the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date
by all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's
account which are not used to purchase stock due to the limitations in this
Section 10 shall be returned to the participant as soon as practicable after the
end of the applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
this Plan by signing and delivering to the Treasury Department a written notice
to that effect on a form provided for such purpose. Such withdrawal may be
elected at any time at least fifteen (15) days prior to the end of an Offering
Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
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<PAGE> 5
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
(c) If the purchase price on the first day of any current
Offering Period in which a participant is enrolled is higher than the purchase
price on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period. A participant does not need to file any forms with the Company to
automatically be enrolled in the subsequent Offering Period
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a Participating
Subsidiary, immediately terminates his or her participation in this Plan. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's
interest in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each option under this Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under this Plan
but have not yet been placed under option (collectively, the "Reserves"), as
well as the price per share of Common Stock covered by each option under this
Plan which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock of the Company resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of issued and outstanding shares of Common Stock effected without receipt
of any consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that the
options under this Plan shall terminate as of a date fixed by the Committee and
give each participant the right to exercise his or her option as to all of the
optioned stock, including shares which would not otherwise be exercisable. In
the event of (i) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, each option under this Plan may
be assumed or an equivalent option may be substituted by such successor
corporation or a parent or subsidiary of
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<PAGE> 6
such successor corporation. In the event such surviving corporation refuses to
assume or substitute options under this Plan, (i) this Plan will terminate upon
the consummation of such transaction, unless otherwise provided by the Committee
and (ii) the Committee may declare that the options under this Plan shall
terminate as of a date fixed by the Committee and give each participant the
right to exercise his or her option as to all of the optioned stock. If the
Committee makes an option fully exercisable in the event of a merger,
consolidation or sale of assets, the Committee shall notify the participant that
the option shall be fully exercisable for a certain period, and the option and
this Plan will terminate upon the expiration of such period.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company
if the participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two (2) years
from the Offering Date or within one (1) year from the Purchase Date on which
such shares were purchased (the "NOTICE PERIOD"). Unless such participant is
disposing of any of such shares during the Notice Period, such participant shall
keep the certificates representing such shares in his or her name (and not in
the name of a nominee) during the Notice Period. The Company may, at any time
during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company or
the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board, this Plan will become effective on the time and date (the "EFFECTIVE
DATE") on which the registration statement filed by the Company with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), to register the initial public offering of the
Company's Common Stock is declared effective by the SEC. This Plan shall be
approved by the stockholders of the Company, in any manner permitted by
applicable corporate law, within twelve (12)
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months before or after the date this Plan is adopted by the Board. No purchase
of shares pursuant to this Plan shall occur prior to such stockholder approval.
This Plan shall continue until the earlier to occur of (a) termination of this
Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under
this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
subsequent to the end of an Purchase Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under this
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or automated quotation system upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan; or
(b) change the designation of the employees (or class of
employees) eligible for participation in this Plan.
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EXHIBIT 10.06
OCULAR SCIENCES, INC.
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of _______ __,
1997, is made by and between Ocular Sciences, Inc., a Delaware corporation (the
"Company"), and _________________, a director and/or officer of the Company (the
"Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify by
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
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Indemnity Agreement
1.1 Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation,
O.S.I. Corporation, a California corporation, or was a director or officer of
another enterprise or affiliate of the Company at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
The term "enterprise" includes any employee benefit plan of the Company, its
subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements
and other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee in connection with the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification or
advancement of expenses under this Agreement, Section 145 or otherwise;
provided, however, that expenses shall not include any judgments, fines, ERISA
excise taxes or penalties or amounts paid in settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more of the Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve as an agent of the Company, at the will of the Company (or under
separate agreement, if such agreement exists), in the capacity the Indemnitee
currently serves as an agent of the Company, faithfully and to the best of his
ability, so long as he is duly appointed or elected and qualified in accordance
with the applicable provisions of the charter documents of the Company or any
subsidiary of the Company; provided, however, that the Indemnitee may at any
time and for any reason resign from such position (subject to any contractual
obligation that the Indemnitee may have assumed apart from this Agreement), and
the Company or any subsidiary shall have no obligation under this Agreement to
continue the Indemnitee in any such position.
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Ocular Sciences, Inc.
Indemnity Agreement
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
shall indemnify the Indemnitee:
4.1 Third Party Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties
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Ocular Sciences, Inc.
Indemnity Agreement
and amounts paid in settlement) to the extent such have been paid directly to
the Indemnitee by D&O Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
5.1 Partial Indemnification. If the Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for some
or a portion of any expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a proceeding but is not entitled, however, to
indemnification for all of the total amount thereof, then the Company shall
nevertheless indemnify the Indemnitee for such total amount except as to the
portion thereof to which the Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then in respect
of any threatened, pending or completed proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such proceeding),
the Company shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
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Ocular Sciences, Inc.
Indemnity Agreement
6. MANDATORY ADVANCEMENT OF EXPENSES.
6.1 Advancement. Subject to Section 9 below, the Company shall
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the General Corporation
Law of Delaware or otherwise. The advances to be made hereunder shall be paid by
the Company to the Indemnitee within thirty (30) days following delivery of a
written request therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of
this Section 6, the Company shall not be obligated to advance any expenses to
the Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
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Ocular Sciences, Inc.
Indemnity Agreement
7.2 If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7.1 hereof, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement of
such proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 To the extent the Indemnitee has been successful on the
merits or otherwise in defense of any proceeding referred to in Section 4.1 or
4.2 of this Agreement or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding, or such claim, issue or matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not
apply to the entire proceeding, the Company shall nonetheless indemnify the
Indemnitee unless the Company shall prove by clear and convincing evidence to a
forum listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
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Ocular Sciences, Inc.
Indemnity Agreement
8.3 The Indemnitee shall be entitled to select the forum in
which the validity of the Company's claim under Section 8.2 hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following, except that the Indemnitee can select a forum consisting of the
stockholders of the Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who
are not parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the
Indemnitee and the Board, which counsel shall make such determination in a
written opinion;
(d) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
last of whom is selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court
having jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty
(30) days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3
hereof is not a court, then after the final decision of such forum is rendered,
the Company or the Indemnitee shall have the right to apply to the Court of
Chancery of Delaware, the court in which the proceeding giving rise to the
Indemnitee's claim for indemnification is or was pending or any other court of
competent jurisdiction, for the purpose of appealing the decision of such forum,
provided that such right is executed within sixty (60) days after the final
decision of such forum is rendered. If the forum selected in accordance with
Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee
to appeal any decision of such court shall be governed by the applicable laws
and rules governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and
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Ocular Sciences, Inc.
Indemnity Agreement
against all expenses incurred by the Indemnitee in connection with any other
proceeding between the Company and the Indemnitee involving the interpretation
or enforcement of the rights of the Indemnitee under this Agreement unless a
court of competent jurisdiction finds that each of the material claims and/or
defenses of the Indemnitee in any such proceeding was frivolous or not made in
good faith.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while
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Ocular Sciences, Inc.
Indemnity Agreement
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
11. GENERAL PROVISIONS
11.1 Interpretation of Agreement. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification and advancement of expenses to the Indemnitee to the
fullest extent now or hereafter permitted by law, except as expressly limited
herein.
11.2 Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, then: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraphs of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary or desirable to secure such
rights and to enable the Company effectively to bring suit to enforce such
rights.
11.5 Counterparts. This Agreement may be executed in one or
more counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
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Ocular Sciences, Inc.
Indemnity Agreement
11.7 Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given: (a) if delivered by hand and receipted for by the party addressee; or (b)
if mailed by certified or registered mail, with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement or as subsequently modified by
written notice.
11.8 Governing Law. This Agreement shall be governed
exclusively by and construed according to the laws of the State of Delaware, as
applied to contracts between Delaware residents entered into and to be performed
entirely within Delaware.
11.9 Consent to Jurisdiction. The Company and the Indemnitee
each hereby irrevocably consent to the jurisdiction of the courts of the State
of Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to
bring any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
-10-
<PAGE> 11
Ocular Sciences, Inc.
Indemnity Agreement
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
OCULAR SCIENCES, INC. INDEMNITEE:
By:________________________________ By:_______________________________
Title:_____________________________
Address:___________________________ Address:___________________________
___________________________________ ___________________________________
-11-
<PAGE> 1
EXHIBIT 10.10
PATENT LICENSE AGREEMENT
This Agreement is entered into as of February 27th, 1997 by and between
Ocular Sciences Ltd., an English corporation formerly known as Precision Lens
Laboratories Ltd. ("OSL"), and Geoffrey Galley, Anthony Galley, Albert Morland,
Barrie Bevis and Ivor Atkinson (the "Patent Owners").
R E C I T A L S
---------------
A. OSL is a manufacturer of contact lenses.
B. The Patent Owners collectively own certain patents and patent
applications covering technology useful in the manufacture of contact lenses.
C. OSL and the Patent Owners have previously entered into a Patent
License Agreement dated September 30, 1992 (the "Previous Patent License")
which they desire to replace in its entirety with this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
1.1 Licensed Patents. The term "Licensed Patents" means the
patents and patent applications listed on Exhibit A attached hereto. Such term
shall also include (i) any patents that issue based on the patent applications
listed on Exhibit A, and (ii) any improvements or modifications to the Licensed
Patents. For the avoidance of doubt, clause (ii) above does not include patents
or patent applications which both (i) embody claims different from those
contained in the Licensed Patents and (ii) would not, if practiced, infringe
against any claim of the Licensed Patents (as currently constituted, or as may
be constituted in the future).
1.2 Licensed Products and Processes. "Licensed Products and
Processes" means any product or process the manufacture, use or sale of which
would, but for the license granted to OSL herein, constitute an infringement of
any valid claim within the Licensed Patents.
2. License. The Patent Owners hereby grant to OSL a perpetual,
irrevocable, fully paid, worldwide, non-exclusive license, to make, have made,
use and/or sell Licensed Products and Processes. OSL may sublicense its rights
hereunder to any company controlling, controlled by or under common control
with OSL (an "Affiliate") but not otherwise.
3. Consideration. This Patent License Agreement is being entered
into pursuant to that certain Settlement Agreement and Release between OSL, the
Patent Owners and certain other persons dated of even date herewith.
<PAGE> 2
4. Assistance. The Patent Owners shall provide OSL with copies of
all patents and patent applications covered by this Agreement. Except as set
forth in the preceding sentence, the Patent Owners are not obligated to provide
any assistance to OSL regarding Utilization of the Licensed Patents.
5. Acknowledgment. For the avoidance of doubt, the Patent Owners
hereby acknowledge and agree that they do not have any right to prevent or
restrict OSL from using or otherwise commercializing any technology or know-how
that was in OSL's possession as of May 19, 1994.
6. Release. The Patent Owners, for themselves and their
successors and assigns, hereby release and discharge OSL, and all Affiliates of
OSL, and any of their past and present directors, officers, employees, agents,
successors, assigns, customers and the like, from any and all causes of
actions, claims and demands whatsoever in law or in equity, which may have
arisen prior to the date of this Agreement, for any infringement or alleged
infringement of any patent or other intellectual property right held by the
Patent Owners.
7. Non-Assertion of Rights. The Patent Owners further agree that
they will not assert any claim for infringement of any Licensed Patent against
any customer or supplier of OSL, or any Affiliate of OSL, whether direct or
indirect, arising out of any activity permitted under this Agreement or the
Previous Patent License.
8. Prosecution of Patents. The Patent Owners shall proceed with
the prosecution of all patent applications included in the Licensed Patents as
of the date of this Agreement, and shall use diligent efforts to obtain patents
for such applications, at the Patent Owner's expense. The patent owners shall
keep OSL apprised of the status of such applications. The Patent owners shall
also apply for and prosecute patents on substantially the same subject matter
as the Licensed Patents in such other jurisdictions as the Patent Owners
select, at the Patent Owner's expense; provided, however, that if the Patent
Owners do not elect to pursue a patent in a new jurisdiction where OSL desires
that patent coverage be pursued, then the Patent Owners shall nevertheless
pursue patent coverage in such jurisdiction at OSL's request, provided that OSL
agrees to pay for the reasonable cost of such application and prosecution.
9. Enforcement of Patents; Patent Marking.
9.1 Patent Owner Action. The parties hereto agree to
provide the other parties with written notice of any infringement of the
Licensed Patents promptly after discovery of such infringement. Upon notice of
infringement, the Patent Owners will, at their discretion, take whatever action,
if any, which they deem appropriate in the circumstances. If the Patent Owners
institute a lawsuit, OSL, if requested by the Patent Owners, agrees to
cooperate with the Patent Owners in such lawsuit (but can not be required to
join such suit as a party), at the Patent Owners' expense. The Patent Owners
agree to inform OSL upon request of the status of any actions taken by the
Patent Owners. It is understood and agreed that the provisions set forth herein
shall not be deemed or construed as an obligation requiring the Patent Owners
to file a lawsuit against third party infringers of Licensed Patents.
9.2 Damages. If the Patent Owners file a lawsuit against a
possible third party infringer of the Licensed Patents, such lawsuit shall be
under the control of the Patent Owners, the
<PAGE> 3
expenses of such lawsuit shall be borne solely by the Patent Owners, and 100%
of the net recovery resulting therefrom shall inure to the benefit of the
Patent Owners. Such lawsuit shall not be settled in a manner that results in
the Patent Owners' grant of a license to such third party without the prior
written approval of OSL, not to be unreasonably withheld.
9.3 OSL Right. If the Patent Owners fail to institute a
lawsuit against an infringer within 60 days after notice of a possible
infringement of the Licensed Patents, OSL may institute a lawsuit against such
infringer and such litigation shall be under the control of OSL, the expenses of
such litigation shall be borne solely by OSL, and 100% of the net recovery
resulting therefrom shall inure to the benefit of OSL. If requested by OSL, the
Patent Owners shall join as a party plaintiff in such lawsuit and cooperate
fully with OSL in such lawsuit, at OSL's expense.
9.4 Invalidity. If any claim included within the Licensed
Patents is declared invalid or unenforceable by a court of competent
jurisdiction from which no appeal is or can be taken, such declaration shall not
entitle OSL to receive any credits or refund.
9.5 Patent Marking. OSL shall, to the extent required by
applicable law, affix or cause to be affixed proper statutory patent marking
notices to the label of licensed products.
10. Term. This Agreement shall remain in effect from the date
hereof until the last of the Licensed Patents expires, is abandoned or is
finally adjudicated invalid.
11. Representations by Patent Owners. The Patent Owners hereby
represent to OSL as follows:
11.1 Ownership of Licensed Patents. Together the Patent
Owners own all right, title and interest to the Licensed Patents, free and
clear of any liens, charges or other encumbrances.
11.2 No Other Applicable Patents. The Patent Owners do not
own or have any other interest in any other patents or patent applications
applicable to the cast molding of contact lenses. The Patent Owners are under
no obligation to license any future developments to OSL, except to the extent
set forth in Section 1.1 above.
11.3 Legal Proceedings; No Default. Except for that certain
lawsuit in the English High Court CH 1995 1116, no action, suit, proceeding or
investigation is pending or threatened either by the Patent Owners or by any
other person or entity related to the Licensed Patents or the technology covered
thereby, and the Patent Owners are not aware of any basis therefor. The
execution of this Agreement and the carrying out of its provisions will not
result in a violation of any contract, agreement or obligation of the Patent
Owners.
11.4 Authority. The Patent Owners have all requisite power to
enter into this Agreement and to carry out its terms. All actions on the part
of the Patent Owners necessary for the authorization, execution, delivery and
performance of their obligations hereunder has been taken, and this Agreement,
when executed and delivered by the Patent Owners, shall constitute their valid
and legally binding obligation, enforceable in accordance with its terms.
<PAGE> 4
11.5 Patent Infringement. The Patent Owners are not aware
of any other person or entity infringing any of the Licensed Patents, or of any
reason why the Licensed Patents or any claim thereof could be challenged or
invalidated.
12. Representations by OSL. OSL hereby represents to the Patent
Owners as follows:
12.1 No Default. The execution of this Agreement and the
carrying out of its provisions will not result in a violation of any contract,
agreement or obligation of OSL or OSI.
12.2 Authority. OSL has all requisite power to enter into
this Agreement and carry out its terms. All actions on the part of OSL
necessary for the authorization, execution, delivery and performance of its
obligations hereunder has been taken, and this Agreement, when executed by OSL,
shall constitute its valid and legally binding obligation, enforceable in
accordance with its terms.
12.3 Patent Infringement. OSL is not aware of any other
person or entity infringing any of the Licensed Patents.
13. General.
13.1 Assignment. This Agreement will bind and inure to the
benefit of each party's successors and assigns. Without limiting the foregoing,
the parties expressly acknowledge that this agreement may be assigned to an
acquiror in connection with an acquisition of OSL or its parent.
13.2 Governing Law/Arbitration. Any disputes arising from or
related to this Agreement shall be resolved by binding arbitration. If an
arbitration is initiated by OSL, then the arbitration shall be held in London,
England, shall be conducted by one or more Queens Counsellors nominated by the
London Common Law and Commercial Bar Association, shall be governed by the law
of England and Wales and shall be conducted pursuant to the Rules of the London
Court of International Arbitration. If the arbitration is initiated by the
Patent Owners, then the arbitration shall be held in San Francisco, California,
USA pursuant to the Commercial Rules of Arbitration of the American Arbitration
Association and shall be governed by the laws of California. Any such
arbitration shall be conducted in a confidential manner.
13.3 Severability. If any provision of this Agreement is
found invalid or unenforceable, that provision will be enforced to the maximum
extent permissible, and the other provisions of this Agreement will remain in
full force and effect.
13.4 Notices. Any notice required or permitted to be given
hereunder shall be given in writing, and shall be served by personal service,
mail, express courier or confirmed facsimile transmission at the address of the
receiving party set forth in this Agreement (or at such different address as
may be designated by such party by written notice to the others). Notice to the
Patent Owners may be provided to Geoffrey Galley on behalf of all Patent
Owners. All notices or demands by mail shall be by registered mail, shall be
deemed given two days after mailing. Notice by personal service shall be deemed
given when delivered, notice by facsimile shall be deemed given when sent and
notice by express courier shall be deemed given one day after delivery to the
courier.
<PAGE> 5
13.5 Entire Agreement. This Agreement and its exhibits are
the complete and exclusive agreement between the parties with respect to the
subject matter hereof. This Agreement supersedes any and all prior agreements,
communications and understandings, both written and oral, regarding such
subject matter, including, without limitation, that certain Patent License
Agreement dated September 30, 1992 and that certain Heads of Settlement dated
December 4, 1996. This Agreement may only be amended or modified by a written
document executed by OSL and Geoffrey Galley, who is hereby appointed by the
Patent Owners to act on their behalf.
13.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one agreement.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first written above.
OCULAR SCIENCES LTD.
By: JOHN D. FRUTH
-------------------------------------
Its: Director
------------------------------------
Address: Reliant Close
Chandlers Ford
Eastleigh, Hampshire SO53 4ND
England
PATENT OWNERS
/s/ ANTHONY GALLEY
-----------------------------------------
Anthony Galley
Address: Beacon Wey, The Hangers
Bishops Waltham
Hants S032 1FZ
England
/s/ GEOFFREY GALLEY
-----------------------------------------
Geoffrey Galley
Address: Red Lodge, The Close
Totteridge
London, N20 8PJ
England
/s/ IVOR ATKINSON
-----------------------------------------
Ivor Atkinson
Address: 90 Queens Drive
Surbiton, Surrey KT5 8PP
England
/s/ BARRIE BEVIS
-----------------------------------------
Barrie Bevis
Address: 53 Wilderness Heights
West End, Southhampton SO3 3PS
England
/s/ ALBERT MORLAND
-----------------------------------------
Albert Morland
Address: 7 Bitterne Place
Newport, Isle of Wight
[PATENT LICENSE AGREEMENT]
6
<PAGE> 7
EXHIBIT A TO PATENT LICENSE AGREEMENT
LICENSED PATENTS
<TABLE>
<CAPTION>
APPLICATION (A) OR
COUNTRY PATENT (P) NUMBER STATUS
- ------- ------------------ ------
<S> <C> <C>
Australia (P) 629280 Granted patent.
Canada (A) 2007536 Examination requested. Usually granted
following grant of US/EP Patent.
Great Britain (P) 2226977 Lapsed in favour of European Patent
(UK).
Europe (P) 0 383 425 B1 Granted. In force in national phase in
all 13 designated states:
Austria, Belgium, Switzerland, Germany,
Denmark, Spain, France, UK, Greece,
Italy, Luxembourg, Netherlands, Sweden.
Japan (A) 3697/90 Examination requested.
S. Korea (A) 90-355 Under examination.
Singapore (P) 1137/93 Registration of EP-03B3425.
Taiwan (P) 39682 Granted patent.
USA (P) 5087015 Granted patent.
</TABLE>
<PAGE> 1
EXHIBIT 10.11
DATE MARCH 27, 1996
OCULAR SCIENCES LIMITED
-and-
JOHN LILLEY
-----------------------
SERVICE AGREEMENT
-----------------------
Bristows Cocke & Carpunzel
10 Lincoln's Inn Fields
London
WC2A 3BP
<PAGE> 2
SERVICE AGREEMENT
DATE 03/27, 1996
PARTIES:
(1) OCULAR SCIENCES LIMITED whose registered office is at 1 Yeoman Park,
Test Lane, Nursling, Southampton S0169TX ("the Company"); and
(2) JOHN LILLEY of Heath House, Lynn Road, Hillington, Kings Lyon, PE31 6B2
("the Employee")
1. INTERPRETATION
1.1 In this Agreement:-
"Board" means the board of Directors of the
Company or any authorised committee of
such board;
"Confidential Information" means all information (whether recorded
or not, and, if recorded, in whatever
form, on whatever media and by so
whomsoever recorded) relating to all or
any part of the business, assets,
activities, proposals, strategies,
services, financial affairs, processes,
products, suppliers, management or
administration of the Company or any
Group Company which is considered by the
company or any Group Company in its
total discretion to be confidential
including any information confidential
to a third party to
-2-
<PAGE> 3
which the Employee may have access
during his employment;
"Group Company" means any company which is at, or at any
time after, the date of this Agreement,
a subsidiary or a holding company of the
Company or any other subsidiary of any
such company as such terms are defined
in section 736 of the Companies Act 1985
including but not limited to OSI
Corporation, a California Corporation;
"Intellectual Property" means inventions, discoveries, designs
and improvements of any nature
whatsoever, trade marks, works in which
copyright does or may subsist;
1.2 References in this Agreement to the singular include the plural and
vice versa.
2. EMPLOYMENT
2.1 The Company employes the Employee and the Employee shall serve
as a director and chief executive of the Company and shall serve
OSI Corporation as Vice President of Manufacturing (UK and
Puerto Rico) and of the Process Development Group upon the terms
and conditions set out in this Agreement.
2.2 The employment of the Employee shall commence immediately after
termination of the Employee's employment with his previous
employer. This employment is not continuous with any previous
employment of the Employee. The employment shall continue
(subject to the provisions of Clause 15) and unless and until
either party serve on the other 12 months' notice
-3-
<PAGE> 4
of termination. The Company reserves the right to make a payment
in lieu of notice.
2.3 The Employee's normal retirement date shall be his 65th
birthday. The Company's right to terminate his employment upon
the last day of the calendar month in which such birthday falls
shall be at its total discretion.
2.4 The Employee warrants to the Company that in entering into and
performing his obligations under this Agreement he will not be
in breach of any terms and conditions (whether express or
implied) of any former employment or of any other obligations
binding upon him.
3. DUTIES
3.1 The Employee shall during his employment perform the duties and
exercise the powers required of him and commensurate with his
job title and described in Clause 2.1 above and as otherwise
assigned to him by the Board and generally shall serve the
company and OSI Corporations well and faithfully using his best
endeavours to promote and develop their interests and goodwill.
The Employee shall, unless prevented by ill-health or
incapacity, devote to his duties the whole of his time,
attention and abilities.
3.2 The Employee shall report to the President of OSI Corporation
from time to time or his nominated deputy. The Employee shall be
based at the Company's Hampshire office but will be required to
work from time to time at OSI Corporation's plant in Puerto
Rico. The Employee will also be required to travel from time to
time in the discharge of his duties.
3.3 The Employee shall not without the prior written consent of the
Company be directly or indirectly engaged or interested in any
other business, trade, vocation or employment or hold any
employment or other office in any
-4-
<PAGE> 5
company other than the Company or any Group Company.
Notwithstanding this the Employee shall be entitled during the
course of his employment (for passive investment purposes only)
to hold or be interested in securities representing not more
than five percent of the issued securities of any class of a
company any part of whose share or loan capital is quoted or
dealt with on the Stock Exchange or the Unlisted Securities
Market or any recognized investments exchange.
4. REMUNERATION
4.1 The Company shall pay to the Employee during the term of his
employment a salary at the rate of [Pounds]95,000.00
(ninety-five thousand pounds) per annum less deduction for PAYE
Income Tax and National Insurance Contributions and any other
deductions which the Company is required by law to make. Such
salary shall be deemed to accrue from day to day and shall be
paid in equal monthly instalments in arrears on the last day of
each month or the first working day after that and shall be
inclusive of any Employee's or other officer's fees payable to
the Employee.
4.2 The salary referred to in Clause 4.1 shall be reviewed every
year on or about 1st January but the Company undertakes no
commitment to increase it as a result of any such review.
5. BONUS
The Employee may be awarded an annual bonus up to a maximum of 40% of
basic salary on an annual basis at the total discretion of the Company
and OSI Corporation based on manufacturing goals and objectives and OSI
Corporation goals and objectives which will be outlined to the Employee
at the start of each fiscal year. The first year of employment shall be
a "partial fiscal year" in which objectives will be established within
60 days of the Employee's start date. The bonus for the partial
-5-
<PAGE> 6
fiscal year shall be pro rated as a percentage of the total year
multiplied by the bonus plan.
6. STOCK OPTIONS
-------------
Participation in OSI Corporation Stock Option Plan will be at the
discretion of the Company and/or OSI Corporation and will be dealt with
separately.
7. EXPENSES
--------
The Company shall by way of reimbursement pay or procure to be paid to
the Employee all reasonable traveling, hotel and other expenses wholly
exclusively and necessarily incurred by him or about the performance of
his duties under this Agreement PROVIDED THAT the Employee provides
reasonable evidence of such expenditure if required by the Company in
accordance with the Company's travel policies.
8. COMPANY CAR
-----------
8.1 The Company will supply the Employee with a motor car for his
use both on the business of the Company and for reasonable
private use. The car will be of a maximum contract hire cost of
$11,500 per annum (including maintenance) based on a three year
term and an annual mileage of 15,000. The Company shall pay all
expenses of repairing, maintaining, servicing and operating the
Employee's car.
8.2 The Employee's use of the car shall be governed by the
Company's car scheme. In particular he shall take good care of
the car and ensure that the provisions and conditions of any
insurance policy relating to it are observed and he shall return
the car and its keys to the Company at the address shown in this
Agreement (or any other place the Company may reasonably
nominate)
- 6 -
<PAGE> 7
immediately upon request or on the termination of this
employment however arising.
9. PENSIONS AND OTHER BENEFITS
The Company will contribute to a personal pension scheme (approved by
the Inland Revenue) of the Employee's choice a sum equal to 25% of the
Employee's basic salary per annum.
10. HOLIDAYS
10.1 The holiday year operates from January 1st to December 31st and
the Employee's entitlement will be 25 days per annum. For each
incomplete year, holiday will be pro-rata. 5 days holiday may be
carried forward, at the discretion of the President.
10.2 Should the Employee leave the Company during the year (other
than for reasons of misconduct), the Employee will receive
payment of any outstanding holiday entitlement for each full
calendar month worked. If, however, the Employee has taken more
holiday than his accrued entitlement, an appropriate deduction
will be made from the final payment.
11. INCAPACITY
If the Employee is prevented by illness or other like cause from
attending to his duties he shall be entitled to continue to receive his
salary from up to 26 weeks in each calendar year. Any sick pay for
absences in excess of this period shall be purely at the discretion of
the Company. This shall not affect the Employee's entitlement to
statutory sick pay in accordance with the Company's Employees handbook.
-7-
<PAGE> 8
12. INTELLECTUAL PROPERTY
12.1 If the Employee in the course of or connected with his
employment by the Company (whether alone or in conjunction with
any other employee or agent of the Company) shall create, make
or discover any Intellectual Property or make any improvement
upon or derivation from any existing work, whether or not the
Intellectual Property has, or is capable of, patent, registered
design, copyright, design right or other like protection, the
Employee shall
12.1.1 immediately disclose full details of such Intellectual
Property (including without limitation data, technical
information, formulae, computer programs and preparatory
design materials) to the Company, and
12.1.2 at the Company's expense do all such acts and execute
all such documents as may be necessary to vest all
rights in or relating to any such Intellectual Property
in the name of the Company with the intention that all
such rights shall (subject, in relation to patents to
any applicable provisions of the Patents Act 1977)
become the absolute property of the Company or its
nominee.
12.2 The Employee hereby waives any Moral Rights which may arise in
relation to such Intellectual Property by virtue of the
Copyright Designs and Patents Act 1988 or other similar
legislation.
13. CONFIDENTIALITY AND RELATED MATTERS
13.1 The Employee shall not, except in the proper performance of his
duties to both the Company or any Group Company, or in pursuance
of any obligation arising from any statutory enactment or order
of a competent court or tribunal during the period of this
Agreement or at any time after its termination (however
-8-
<PAGE> 9
arising) directly or indirectly make use of or divulge or
communicate to any third party any of the Confidential
Information of which he may have become possessed during his
employment save to the extent that any such information may be
in the public domain (other than as a result of any breach of
this Agreement by the Employee).
13.2 All materials, documents (including copies), disks, tapes and
other material (in whatever medium) held by the Employer
containing or referring to Confidential Information or relating
to the affairs and business of the Company or any Group Company
shall be the property of the Company or the relevant Group
Company and shall be delivered by him to the Company upon
request by the Company and, in any event, upon the termination
of this employment however arising.
14. RESTRICTIONS
14.1 The parties acknowledge that prior to his employment under this
Agreement, the Employee has not previously worked for any
company or undertaking nor been otherwise involved in such
company or undertaking involved in or advising on the
manufacture of contact lenses by a cast moulding process. The
parties further acknowledge that in view of the technical
sensitivity and commercial value of the technology the subject
matter of the Employee's employment under this Agreement, it is
appropriate and necessary for the following covenants to be
provided for the protection of the business of the Company and
any Group Company.
14.2 For the purposes of this Clause the following expressions shall
have the following meanings:-
14.2.1 "Competing Business" means any person, form or corporate
body involved in the manufacture of
contact
-9-
<PAGE> 10
lenses by a technique involving a
case moulding process;
14.2.2 "Date of Termination" means the date upon which the
employment terminates for whatever
reason;
14.3 The Employee will not without the prior written consent of the
Company (such consent only to be withheld so far as may
reasonably be necessary to protect the legitimate business
interest of the Company) during his employment or for a period
of 12 months from the Date of Termination assist, work for or
otherwise operate on behalf or for the benefit of any Competing
Business whether such activity be as employee, consultant,
adviser, shareholder, principal, agent, director or otherwise
howsoever, whether or not for financial reward. This restriction
shall be without prejudice to the obligations of the Employee
pursuant to the provisions of Clause 13 hereof.
15. TERMINATION OF EMPLOYMENT AND CONSEQUENCES
------------------------------------------
15.1 The employment of the Employee may be terminated by the Company
without notice or payment in lieu of notice and without
liability for compensation or damages;
15.1.1 if the Employee is guilty of any gross default or
misconduct in connection with or affecting the business
of the Company or any Group Company;
15.1.2 in the event of any serious or repeated breach or
non-observance by the Employee of any stipulations
contained or referred to in this Agreement;
- 10 -
<PAGE> 11
15.1.3 if the Employee is of convicted of any criminal offence (other
than an offence under road traffic legislation in the United
Kingdom or elsewhere for which a fine or non-custodial penalty
is imposed);
15.1.4 if the Employee shall have been guilty of any other conduct
likely or intending to bring the Company or any Group Company
into disrepute;
15.1.5 if the Employee become bankrupt or makes any composition or
enters into any deed of arrangement with his creditors;
15.1.6 if the Employee shall become of unsound mind or a patient under
the Mental Health Act 1983.
15.2 In the event of termination of this employment for whatever reason:
15.2.1 the Employee shall at the request of the Company at any time
thereafter immediately resign from any office of the Company or
Group Company which he holds without claim for compensation and
in the event of his failure so to do the Company is irrevocably
authorized to appoint some person in his name and on his behalf
to sign and deliver such resignation;
15.2.2 the Employee shall not, without the consent of the Company at
any time thereafter represent himself to be connected with the
Company or any Group Company.
-11-
<PAGE> 12
16. DISCIPLINARY RULES AND GRIEVANCE PROCEDURES
16.1 The disciplinary rules for the Company's staff are set out in
the Company's staff handbook. The extent to which these apply to
the Employees of the seniority of the Employees is entirely at
the Company's discretion.
16.2 If the Employee has any grievance relating to his employment he
should raise this with the President who will then endeavour to
resolve the matter as quickly as possible.
17. CHOICE OF LAW AND ARBITRATION
17.1 The Employment of the Employee by the Company is governed by
and shall be construed in accordance with the laws of England.
17.2 The relationship between the Employee and OSI Corporation
arising from his officership of OSI Corporation as referred to
in Clause 2.1 above shall be governed by and construed in
accordance with the laws of the State of California, United
States of America.
17.3 The parties hereby submit to the jurisdiction of the English
Courts.
-12-
<PAGE> 13
Signed by the parties on the date appearing at the beginning of this Agreement.
SIGNED by )
duly authorised for and on behalf of )
OCULAR SCIENCES LIMITED ) /s/ JOHN D. FRUTH
in the presence of-
SIGNED by JOHN LILLEY ) /s/ JOHN LILLEY
in the presence of- ) /s/ D.E. DUNNE
-13-
<PAGE> 1
EXHIBIT 10.12
LEASE
THIS LEASE is made as of this 18th day of May, 1995, by and between STANLEY D.
McDONALD, NORMAN H. SCHEIDT, HERBERT A. WEST and McDONALD LTD., a Washington
limited partnership ("Landlord"), and O.S.I. CORPORATION, a California
corporation ("Tenant").
1. PREMISES
(a) LEASED PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord, upon the terms and conditions hereinafter set forth, certain
premises consisting of a portion of an office/warehouse project (the "Project")
constructed on certain land located in the City of South San Francisco, County
of San Mateo, State of California, which land is more particularly described in
Exhibit A. The Project is generally depicted on the site plan attached hereto as
Exhibit B. The premises leased to Tenant (the "Premises") are generally depicted
in the preliminary floor plan attached hereto as Exhibit C. Landlord represents
and warrants that the ownership of the Project at the time of execution of this
Lease is vested in Landlord and that Landlord has full right, title, and
authority to enter into this Lease.
(b) RIGHT OF FIRST REFUSAL.
(1) Subject to the conditions set forth in this Paragraph I
(b), Tenant shall have a right of first refusal to lease any and all remaining
leasable portions of the Project that become available during the Term. This
right of first refusal may be exercised only if Tenant intends to occupy the
space for its own foreseeable or long-term needs. Notwithstanding the foregoing,
if Tenant is in default of any of the terms, covenants, or conditions of this
Lease at the time a letter of intent is sent under Paragraph 1(b)(2) below
beyond any applicable notice, grace and cure period or thereafter at any other
time prior to the date on which the space is to be leased to Tenant, Landlord
shall have, in addition to all of the other rights and remedies provided in this
Lease, the right to terminate the right of first refusal granted to Tenant
hereunder.
(2) In the event that Landlord enters into any non-binding
"letter of intent" for the remaining space qualifying for Tenant's rights under
this Paragraph 1(b), Landlord shall send to Tenant a copy of such letter of
intent. The letter of intent shall specify (i) the base rent Landlord intends to
lease such space, (ii) the leasehold improvements and any tenant allowance to be
provided by Landlord for such space, and (iii) the term for which the Landlord
intends to offer such space and the date upon which such space shall be
available for delivery to Tenant or any third party leasing such space. Tenant
shall have ten (10) days after receipt of such letter of intent from Landlord
within which to notify Landlord if its intention to lease such space, which
notice shall be irrevocable by Tenant.
(3) In the event Tenant elects to exercise its right to
lease such space, (i) such space shall be deemed a part of the Premises and
Tenant shall commence paying Rent with respect thereto on the date such space is
delivered to Tenant, (ii) such space shall be leased on
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the same terms and conditions as contained in this Lease and for a term to
coincide with the Term (including the Extended Term, if applicable) except that
Base Rent for such space shall be equal to the then current Base Rent per square
foot for the Premises (as the same may be adjusted) minus seven and one-half
cents ($0.075) and the result thereof multiplied by the total square footage of
such space, and (iii) such space shall be leased to Tenant in its then existing
condition and Landlord shall have no obligation to make any improvements to the
Premises or pay any allowance to Tenant. Landlord and Tenant shall execute and
acknowledge an instrument confirming the lease to Tenant of such space and the
terms and conditions upon which such space is leased to Tenant.
(4) In the event that Tenant does not exercise its rights to
lease the space specified in the letter of intent within the ten (10) day time
period set forth above, Landlord may proceed to lease such space on the terms
and conditions set forth in the letter of intent.
Landlord and Tenant acknowledge that Landlord has entered into a lease
for such space with Monster Cable Products, Inc., commencing August 1, 1995 and
expiring July 31, 1998. Landlord and Tenant further agree that upon the
expiration of such lease, but in no event before July 31, 1998 or later than
October 31, 1998, Tenant shall have a right of first refusal to lease such space
on the terms and conditions contained in this Paragraph 1(b).
2. CONSTRUCTION OF PREMISES
(a) LANDLORD'S CONSTRUCTION. Promptly after execution of this Lease,
Landlord shall undertake to construct certain improvements to the Premises and
the Project in accordance with and subject to the terms and conditions of the
work letter attached hereto as Exhibit D. Such improvements shall be paid by the
parties in accordance with the terms thereof.
(b) PREMISES LEASED "AS-IS". Tenant confirms and agrees that it is
leasing the Premises in their "as is" state and condition, that it has, and will
have, reviewed and fully satisfied itself as to the adequacy of Landlord's
construction, and that Landlord shall have no obligation whatsoever to make or
pay for any improvements or renovation in the Premises to prepare same for
Tenant's occupancy, except as expressly provided elsewhere in this Lease,
including, without limitation, Paragraph 1(a), above. By taking possession of
the Premises, Tenant shall be deemed to have accepted the Premises in good
working order, condition and repair, in compliance with all Regulations (as
defined in Paragraph 4(c) below), and otherwise in the condition in which
Landlord was required to deliver them to Tenant.
3. LEASE COMMENCEMENT/TERM
(a) INITIAL TERM. The initial term of this Lease shall commence on
the date (the "Commencement Date") that Landlord delivers possession of the
Premises to Tenant substantially completed in accordance with the Work Letter
but in no event before November 1, 1995, and, unless sooner terminated pursuant
to the provisions hereof, shall continue for the
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period specified in the Basic Lease Information. If the Commencement Date is
other than the first day of a calendar month, the initial term shall also
include the remainder of the partial calendar month in which the Commencement
Date occurs.
Notwithstanding the foregoing, if Landlord is delayed in delivering
possession of the Premises due to the acts or omissions of Tenant or any of
Tenant's agents, employees, invitees, consultants, or contractors (collectively
"Tenant Delays"), the Commencement Date shall be accelerated by one day for each
such day of delay. Landlord shall use reasonable efforts to give Tenant not less
than 30 days' prior notice of the anticipated Commencement Date.
Landlord shall use reasonable efforts to deliver possession of the
Premises to Tenant on or before the Projected Commencement Date specified in the
Basic Lease Information. If Landlord, for any reason whatsoever, cannot deliver
possession of the Premises to Tenant on the Projected Commencement Date, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom; provided, however, that if Landlord does
not deliver the Premises to Tenant on or before that date which is 120 days
after the Projected Commencement Date, as and to the extent such date may be
extended on account of Tenant Delays, Tenant shall have the fight to terminate
this Lease by notifying Landlord thereof at any time before Landlord delivers
possession of the Premises to Tenant in the condition required hereby. In the
event Tenant elects to so terminate this Lease, Landlord shall promptly return
all Rent and security deposits paid by Tenant and both parties shall be released
from its obligations hereunder (unless such obligation expressly provides that
it shall survive the termination of this Lease).
At Landlord's request, Tenant shall execute an amendment to this Lease
confirming the exact Commencement Date and Expiration Date when the same are
known, and confirming such other matters as Landlord may reasonably request.
(b) EARLY OCCUPANCY. Tenant shall have the right to occupy the
warehouse portion of the Premises prior to the Commencement Date on all the
terms and conditions of this Lease except that (i) Base Rent shall be waived,
and (ii) Tenant's Proportionate Share shall be based on the square footage of
space occupied compared to the total square footage of the Project. All other
terms and conditions of this Lease shall be in effect during such period. Any
such early possession shall not affect or advance the Expiration Date.
(c) OPTIONS TO EXTEND. Tenant shall have one (1) option to extend
the term of this Lease (the "Extension Option") for an additional five (5) years
(the "Extended Term"), upon the further terms and provisions provided below. The
Extension Option is subject to the following conditions: (i) Tenant shall not be
in default at the time it exercises the Extension Option beyond any applicable
notice, grace, or cure periods; (ii) the Lease shall be in full force and effect
at the time the Extension Option is exercised and at the time the Extended Term
is to commence; and (iii) Tenant shall have delivered written notice of its
exercise of the Extension Option to Landlord not less than one (1) year prior to
the expiration of the initial term.
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Upon Tenant's exercise of the Extension Option, and subject to the
foregoing conditions, the term of this Lease shall be extended for the Extended
Term upon all the terms and conditions hereof, except that (i) the Base Rent
shall be as provided below, and (ii) Tenant shall have no right to extend the
term of this Lease beyond the expiration of the Extended Term.
The Base Rent payable during the Extended Term shall be equal to
ninety-five percent (95%) of the Fair Market Rent for the Premises during the
Extended Term. For purposes hereof, "Fair Market Rent" shall mean the monthly
base rental rates (including periodic increases to such base rental rates as
well as the cost of commissions, concessions (such as moving expenses and other
concessions) and tenant improvement allowances) then being received for premises
of similar size and quality with the same office/warehouse ratio to the Premises
in office/warehouse buildings in north San Mateo County which are similar in
size and quality to the Project (excluding research and development projects
such as Edgewater and Pointe Grand and all metal buildings) under "triple net"
leases for terms of approximately five years, and otherwise containing
substantially similar terms as those contained in this Lease. In no event,
however, shall Base Rent for the Extended Term be less than the Base Rent
payable for the last full calendar month of the initial term.
Not more than fourteen months nor less than twelve months prior to the
commencement of each Extended Term, Landlord and Tenant shall meet and attempt
in good faith to determine and mutually agree upon the Fair Market Rent to be
paid during such Extended Term. If, 300 days prior to the commencement of such
Extended Term, the parties have not reached agreement, each party shall appoint
an Appraiser (hereinafter defined) and shall give notice to the other party of
the identity of the Appraiser no later than 290 days prior to the commencement
of such Extended Term. For purposes hereof, "Appraiser" means an independent
real estate broker with not less than 5 years of full time commercial brokerage
experience in north San Mateo County and with no current business dealings with
the party appointing such Appraiser. If either party fails to timely appoint an
Appraiser, the sole Appraiser appointed shall determine the Fair Market Rent to
be paid during such Extended Term. If two Appraisers are appointed, they shall
immediately meet and attempt to agree upon such Fair Market Rent. If they are
unable to do so within 15 days after their first meeting, they shall deliver
copies of their appraisals together with any supporting documentation to each
other and thereafter jointly appoint a third Appraiser. The third Appraiser
shall, within 10 days of his/her appointment, select that appraisal submitted by
the other two Appraisers which, in the third Appraiser's opinion, most
accurately states the Fair Market Rent and such amount shall be the Base Rent
during that Extended Term. If the two Appraisers are unable to agree upon such
third Appraiser, either party may petition the Presiding Judge of the Superior
Court of the City and County of San Mateo to appoint such third Appraiser. If
the Base Rent for the Extended Term as determined by the foregoing procedure is
greater than 125% of the Base Rent in effect for the last year of the initial
term of the Lease, Tenant shall have the option, to be exercised within ten (10)
days after such determination to revoke Tenant's exercise of the Extension
Option provided Tenant pays to Landlord with such notice all reasonable costs
incurred by Landlord in connection with the appraisal proceeding, in which case
this Lease shall expire on the previously scheduled Expiration Date.
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Except as expressly provided above, the determination of Base Rent as
provided herein shall be binding upon the parties hereto. Promptly upon each
such determination, the parties shall execute an amendment specifying the Base
Rent payable during the Extended Term for which such determination was made.
4. USE
(A) GENERAL. Tenant shall use the Premises for the Permitted Use and
for no other use or purpose without the prior written consent of Landlord which
consent shall not be unreasonably withheld, delayed or conditioned. Tenant shall
have the exclusive use of approximately 250 parking spaces, consisting of the
entire parking lot for the Project excluding the west corner of the parking lot,
as shown on the site plan attached hereto as Exhibit B, for parking by Tenant
and Tenant's employees, agents, customers, visitors, invitees, licensees,
contractors, assignees and subtenants (collectively, "Tenant's Parties"). Tenant
shall control Tenant's Parties in such a manner that Tenant and Tenant's Parties
cumulatively do not exceed the exclusive number of parking spaces available for
Tenant's use. Tenant and Tenant's Parties shall have the nonexclusive right to
use, in common with other parties occupying the Project, the parking areas and
driveways of the Project for access to and egress to and from the Premises,
subject to such reasonable rules and regulations as Landlord may from time to
time prescribe. Tenant shall have the exclusive use of six (6) loading docks as
shown on the attached site plan. Tenant shall also have the non-exclusive use of
the roof of the Project for a microwave dish for Tenant's business subject to
Landlord's approval and provided such microwave dish is installed by contractors
approved by Landlord. Tenant shall have the exclusive use of all parking spaces
in the Project and all loading docks if and when Tenant leases the entire
remaining portion of the Project.
(B) LIMITATIONS. Tenant shall not permit any odors, smoke, dust,
gas, substances, noise or vibrations to emanate from the Premises, nor take any
action which would constitute a nuisance or would disturb, obstruct or endanger
any other tenants of the Project or interfere with their use of their respective
premises. Storage outside the Premises is prohibited. Tenant shall not use or
allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer the commission
of any waste in, on or about the Premises. Tenant shall not allow any sale by
auction upon the Premises, or place any loads upon the floors, walls or ceilings
which endanger the structure. No waste, materials or refuse shall be dumped upon
or permitted to remain outside the Premises except in trash containers placed
inside exterior enclosures designated for that purpose by Landlord. Landlord
shall not be responsible to Tenant for the non-compliance by any other tenant or
occupant of the Project with any of the above-referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other contract.
(C) COMPLIANCE WITH REGULATIONS. Tenant shall, at Tenant's sole
expense, strictly comply with all existing or future applicable municipal, state
and federal and other governmental statutes, regulations, laws and ordinances,
including zoning ordinances and regulations
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(collectively "Regulations") now in force or which may hereafter be in force
relating to the Premises or Tenant's use thereof. Tenant shall at its sole cost
and expense obtain any and all licenses or permits necessary for Tenant's use of
the Premises. Tenant shall promptly comply with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted. Tenant
shall not do or permit anything to be done in, on, or about the Premises or
bring or keep anything which will in any way increase the rate of any insurance
upon the Premises or the Project, or upon any contents therein or cause a
cancellation of said insurance or otherwise affect said insurance in any manner.
(D) HAZARDOUS MATERIALS. Tenant shall not cause or permit, or allow
any of Tenant's Parties to cause or permit, any Hazardous Materials to be used,
generated, stored or disposed of on or about the Premises or the Project. As
used in this Lease, "Hazardous Materials" shall include, but not be limited to,
hazardous, toxic and radioactive materials and those substances defined as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or other similar designations in any federal, state, or local law,
regulation, or ordinance. Landlord shall have the right at all reasonable times
to inspect the Premises and to conduct tests and investigations to determine
whether Tenant is in compliance with the foregoing provisions. Tenant shall
indemnify, defend, protect and hold Landlord harmless from and against all
liabilities, losses, costs and expenses, demands, causes of action, claims or
judgments directly or indirectly arising out of the use, generation, storage or
disposal of Hazardous Materials by Tenant or any of Tenant's Parties, which
indemnity shall include, without limitation, the cost of any required or
necessary repair, testing, cleanup or detoxification, and the preparation of any
closure or other required remediation plans, whether such action is required or
necessary prior to or following the termination of this Lease. Neither the
written consent by Landlord to the use, generation, storage or disposal of
Hazardous Materials nor the strict compliance by Tenant with all laws pertaining
to Hazardous Materials shall excuse Tenant from Tenant's obligation of
indemnification pursuant to this Paragraph 4(d). Tenant's obligations pursuant
to the foregoing indemnity shall survive the termination of this Lease. As of
the date of this Lease, Landlord represents and warrants that Landlord has not
caused any Hazardous Materials to be disposed of on or about the Project.
5. RULES AND REGULATIONS
Tenant shall before and during the Term faithfully observe and comply
with the rules and regulations and all reasonable modifications thereof and
reasonable additions thereto from time to time put into effect by Landlord of
which Tenant has been given reasonable notice. Landlord shall have the right to
promulgate different rules and regulations applicable to different portions of
the Project but such rules and regulations shall be uniformly applicable within
a particular class of tenants subject to accommodating the specific needs of
certain tenants. If there are any inconsistencies between the rules and
regulations and the provisions of this Lease, the relevant Lease provision shall
control to the extent necessary to resolve the inconsistency. Further,
Landlord's right to amend or promulgate rules and regulations shall be subject
to the condition that:
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(a) those pertaining to the Premises shall be strictly
limited to matters of health, safety, sanitation or the operation of utilities
and shall in no other manner or pertain to the conduct by Tenant of its business
in the Premises except to the extent required by applicable law, ordinance,
regulation or code, and
(b) without limiting the generality of (1) above, no such
rule or regulation, whether pertaining to the Premises or the Project, shall
materially increase any of Tenant's obligations under this Lease nor materially
decrease any of Tenant's rights hereunder.
Landlord shall not be responsible for the nonperformance by any other
tenant or occupant of the Project of any of such rules and regulations. Landlord
shall use reasonable efforts to obtain the compliance by any other tenant or
occupant of the Project with any such rules and regulations, but Landlord shall
be under no obligation to bring legal action against or terminate the lease of
any other tenant for violating the Project rules and regulations, except however
that Tenant shall be relieved of the duty to comply with such rule or regulation
so long as such other tenant or occupant of the Project is not complying with
such rule or regulation, and Tenant shall not waive any of its rights and
remedies with respect to such failure of the other tenant to comply with such
rule or regulation or with respect to Landlord's failure to enforce such rule or
regulation against such other tenant, to the extent that Tenant has any such
rights and remedies against Landlord pursuant to the provisions of this Section.
6. RENT
(A) BASE RENT. Tenant shall pay to Landlord, without demand
throughout the Term, Base Rent as specified in the Basic Lease Information
and/or the Rental Schedule attached hereto, payable in monthly installments in
advance on or before the first day of each calendar month, in lawful money of
the United States, without deduction or offset whatsoever, at the address
specified in the Basic Lease Information or to such other place as Landlord may
from time to time designate in writing. Base Rent for the first full month of
the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the
obligation for payment of Base Rent commences on other than the first day of a
month, then Base Rent shall be prorated and the prorated installment shall be
paid on the first day of the calendar month next succeeding the Commencement
Date.
(B) ADDITIONAL RENT. All monies other than Base Rent required to be
paid by Tenant hereunder, including, but not limited to, the interest and late
charge described in Paragraph 27, any monies spent by Landlord pursuant to
Paragraph 30, and Tenant's Proportionate Share of Basic Operating Cost, as
specified in Paragraph 7 of this Lease, shall be considered additional rent
("Additional Rent"). "Rent" shall mean Base Rent and Additional Rent.
7. BASIC OPERATING COST
(A) BASIC OPERATING COST. In addition to the Base Rent required to
be paid hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate
Share, as defined in the Basic Lease
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Information, of Basic Operating Cost in the manner set forth below. Tenant's
proportionate share of Basic Operating Cost for the first full year of the
initial term of this Lease shall not exceed $0.081 per square foot provided that
after the first year, there shall be no such limitation. Basic Operating Cost
shall mean all expenses and costs of every kind and nature which Landlord shall
pay or become obligated to pay, because of or in connection with the management,
maintenance, preservation and operation of the Project including but not limited
to the following:
(1) TAXES. All real property taxes, possessory interest
taxes, business or license taxes or fees, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, transit charges,
housing fund assessments, open space charges, assessments, levies, fees or
charges, general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind (including fees "in-lieu" of any such tax or assessment)
which are assessed, levied, charged, confirmed, or imposed by any public
authority upon the Project, its operations or the Rent (or any portion or
component thereof) (all of the foregoing being hereinafter collectively referred
to as "real property taxes"), or any tax imposed in substitution, partially or
totally, of any tax previously included within the definition of real property
taxes, or any additional tax the nature of which was previously included within
the definition of real property taxes, except (a) inheritance or estate taxes
imposed upon or assessed against the Project, or any part thereof or interest
therein, and (b) taxes computed upon the basis of net income of Landlord or the
owner of any interest therein, except as otherwise provided in the following
sentence. Basic Operating Cost shall also include any taxes, assessments, or any
other fees imposed by any public authority upon or measured by the monthly
rental or other charges payable hereunder, including, without limitation, any
gross rental tax or excise tax levied by the local governmental authority in
which the Project is located, the federal government, or any other governmental
body with respect to receipt of such rental, or upon, with respect to or by
reason of the development, possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof, or upon this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. In
the event that it shall not be lawful for Tenant to reimburse Landlord for all
or any part of such taxes, the monthly rental payable to Landlord under this
Lease shall be revised to net to Landlord the same net rental after imposition
of any such taxes by Landlord as would have been payable to Landlord prior to
the payment of any such taxes. Basic Operating Cost shall not include Landlord's
corporate or income taxes.
(2) INSURANCE. All insurance premiums and costs, including
but not limited to, any deductible amounts, premiums and cost of insurance
incurred by Landlord, as more fully set forth in Paragraph 8(a) herein.
(3) REPAIRS AND IMPROVEMENTS. Repairs, replacements and
general maintenance for the Premises and the Project including, without
limitation, the following: wages, salaries, employee benefits, and payroll
burden of personnel engaged in management, operation and maintenance of the
Project; costs of power, heat, light, steam, air conditioning, gas, water,
garbage, sewage and waste disposal and other utilities; costs of equipment,
tools, materials and supplies; license, permit and inspection fees; amounts paid
under maintenance
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contracts and for general services; depreciation on, or rental of, personal
property; reasonable replacement reserves including reasonable reserves for roof
replacement; the amortized costs of resurfacing the parking lot areas; the costs
of repainting, restriping, cleaning, sweeping and repairing the parking lot
areas; costs of repairing or replacement of debris receptacles; landscaping
costs including maintenance, watering and the replacement or addition of plants;
cost of directional signs, other markers, and car stops; and all costs of
keeping the roofs, plumbing, sewage systems, electrical, and heating and air
conditioning systems of the buildings in the Project in good order, condition
and repair. Such repairs, replacements, and general maintenance shall include
the amortized cost of any capital improvements made to or capital assets
acquired for the Project or the Premises after the Commencement Date that (i)
reduce any other Basic Operating Cost, or reduce or conserve the amount of
utilities conserved, (ii) are reasonably necessary to keep the Project,
including the buildings thereon and the common areas therein, in good order,
condition and repair, or (iii) are made to the Project by Landlord after the
date of this Lease and are required under any Regulation, such costs or
allocable portions thereof to be amortized over such reasonable period as
Landlord shall determine, together with interest on the unamortized balance at
the "prime rate" charged at the time such improvements or capital assets are
constructed or acquired by Wells Fargo Bank, N.A. (San Francisco), plus two (2)
percentage points, but in no event more than the maximum rate permitted by law.
Notwithstanding any provision of this Lease to the contrary, in no event
shall Basic Operating Cost include:
(i) Costs associated with the operation of the
business of the ownership or entity which constitutes "Landlord," as
distinguished from the costs of building operations, including, but not limited
to, partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee (except as the actions of Tenant may be in issue), costs of
selling, syndicating, financing, mortgaging, or hypothecating any of Landlord's
interest in the Project, costs of any disputes between Landlord and its
employees (if any) not engaged in Project operation, disputes of Landlord with
Project management, or outside fees paid in connection with disputes with other
tenants;
(ii) Costs incurred in connection with the initial
construction of the Project;
(iii) Costs of improvements to the Premises or the
premises of other tenants except as otherwise provided herein;
(iv) Depreciation, interest, and principal payments
on mortgages;
(v) Expenses to the extent resulting from the
negligence of Landlord, its agents, servants, or employees;
(vi) Legal fees, space planners' fees, real estate
brokers' leasing commissions, and advertising and/or promotional expenses
incurred in connection with the original development or original leasing of the
Project or future leasing of the Project;
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(vii) Costs for which Landlord is reimbursed by its
insurance carrier or any tenant's insurance carrier or pursuant to any
guarantees or warranties for the Tenant Improvements or Landlord's work pursuant
to the Work Letter;
(viii) Any bad debt loss, rent loss, or reserves for
bad debts or rent loss;
(ix) Fines, penalties, and interest to the extent not
caused by Tenant;
(x) Amounts paid as ground rental by Landlord;
(xi) Costs incurred by Landlord with respect to goods
and services (including utilities sold and supplied to tenants and occupants of
the Project) to the extent that Landlord is entitled to reimbursement for such
costs;
(xii) Costs, including permit, license, and inspection
costs, incurred with respect to the installation of tenant improvements made for
new tenants in the Project or incurred in renovating or otherwise improving
decorating, painting, or redecorating vacant space for tenants or other
occupants of the Project;
(xiii) Overhead and profit increment paid to Landlord
or to subsidiaries or affiliates of Landlord for services in the Project to the
extent the same exceeds the costs of such services rendered by unaffiliated
third parties on a competitive basis;
(xiv) The initial cost of the installation of the
parking and landscaping areas or the amortization or depreciation of such
initial cost;
(xv) Electric power costs for which any tenant
directly contracts with the local public service company;
(xvi) Accounting fees, legal and other fees, leasing
commissions, advertising expenses and other costs incurred in connection with
the original development or original leasing of the Project or future re-leasing
of the Project;
(xvii) Rentals for items, if purchased, would be a
capital improvement or capital asset the cost of which would not otherwise be
permitted as a Basic Operating Cost;
(xviii) Maintenance and repair costs expressly made the
responsibility of Landlord pursuant to the first sentence of Paragraph 10;
(xix) Costs for the Tenant Improvements, which shall
be paid for in accordance with the Work Letter attached hereto.
(4) MANAGEMENT FEE. A management and accounting cost
recovery fee equal to three percent (3%) of the sum of Base Rent and Basic
Operating Cost.
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In the event that the Project is not fully occupied during any fiscal
year of the Term as determined by Landlord, an adjustment shall be made
computing the Basic Operating Cost for such year so that Tenant pays an
equitable portion of the variable items of Basic Operating Cost, as mutually
agreed by Landlord and Tenant; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred percent (100%) of the
total Basic Operating Cost from all of the tenants in the Project including
Tenant.
(b) PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated Basic
Operating Cost" for any particular year shall mean Landlord's estimate of the
Basic Operating Cost for such fiscal year made prior to commencement of such
fiscal year as hereinafter provided. Landlord shall have the right from time to
time to revise its fiscal year and interim accounting periods so long as the
periods as so revised are reconciled with prior periods in a consistent manner.
During the last month of each fiscal year during the Term, or as soon thereafter
as practicable, Landlord shall give Tenant written notice of the Estimated Basic
Operating Cost for the ensuing fiscal year. Tenant shall pay Tenant's
Proportionate Share of the Estimated Basic Operating Cost with installments of
Base Rent for the fiscal year to which the Estimated Basic Operating Cost
applies in monthly installments on the first day of each calendar month during
such year, in advance. If at any time during the course of the fiscal year,
Landlord determines that Basic Operating Cost is projected to vary from the then
Estimated Basic Operating Cost by more than ten percent (10%), Landlord may, by
written notice to Tenant together with supporting documentation for such
revision, revise the Estimated Basic Operating Cost for the balance of such
fiscal year, and Tenant's monthly installments for the remainder of such year
shall be adjusted so that by the end of such fiscal year Tenant has paid to
Landlord Tenant's Proportionate Share of the revised Estimated Basic Operating
Cost for such year.
(c) COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic Operating
Cost Adjustment" shall mean the difference between Estimated Basic Operating
Cost and Basic Operating Cost for any fiscal year determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a
statement of Basic Operating Cost for the fiscal year just ended, accompanied by
a computation of Basic Operating Cost Adjustment. If such statement shows that
Tenant's payment based upon Estimated Basic Operating Cost is less than Tenant's
Proportionate Share of Basic Operating Cost, then Tenant shall pay to Landlord
the difference within twenty (20) days after receipt of such statement. If such
statement shows that Tenant's payments of Estimated Basic Operating Cost exceed
Tenant's Proportionate Share of Basic Operating Cost, then (provided that Tenant
is not in default under this Lease beyond any applicable notice, grace and cure
period) Landlord shall pay to Tenant the difference within twenty (20) days
after delivery of such statement to Tenant. If this Lease has been terminated or
the Term hereof has expired prior to the date of such statement, then the Basic
Operating Cost Adjustment shall be paid by the appropriate party within twenty
(20) days after the date of delivery of the statement. Should this Lease
commence or terminate at any time other than the first day of the fiscal year,
Tenant's Proportionate Share of the Basic Operating Cost adjustment shall be
prorated by reference to the exact number of calendar days during such fiscal
year that this Lease is in effect.
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(d) NET LEASE. This shall be a net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. Except as expressly provided herein, the
provisions for payment of Basic Operating Cost and the Basic Operating Cost
Adjustment are intended to pass on to Tenant and reimburse Landlord for all
costs and expenses of the nature described in Paragraph 7(a) incurred in
connection with the ownership, maintenance and operation of the Project and such
additional facilities now and in subsequent years as may be determined by
Landlord to be necessary to the Project.
(e) TENANT AUDIT. In the event that Tenant shall dispute the amount set
forth in any statement provided by Landlord under Paragraph 7(b) or 7(c) above,
Tenant shall have the right, not later than sixty (60) days following the
receipt of such statement and upon the condition that Tenant shall first deposit
with Landlord the full amount in dispute, to cause Landlord's books and records
with respect to Basic Operating Cost for such fiscal year to be audited by
representatives selected by Tenant and subject to Landlord's reasonable right of
approval. The Basic Operating Cost Adjustment shall be appropriately adjusted on
the basis of such audit. If such audit discloses a liability for a refund in
excess of four percent (4%) of Tenant's Proportionate Share of the Basic
Operating Cost for such fiscal year, the cost of such audit shall be borne by
Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant
shall not request an audit in accordance with the provisions of this Paragraph
7(e) within sixty (60) days after receipt of Landlord's statement provided
pursuant to Paragraph 7(b) or 7(c), such statement shall be final and binding
for all purposes hereof, except for computation errors.
8. INSURANCE AND INDEMNIFICATION
(a) LANDLORD'S INSURANCE. Landlord agrees to maintain "All Risk"
property insurance (including, if generally being obtained by landlord's of
buildings similar in quality and nature to the Project, earthquake insurance),
in an amount not less than the full replacement cost of the Project (excluding
foundations) and all tenant improvements located thereon, with deductibles and
the form and endorsements of such coverage as reasonably selected by Landlord.
Such insurance may also include, at Landlord's option, insurance against loss of
Base Rent and Additional Rent, in an amount equal to the amount of Base Rent and
Additional Rent payable by Tenant for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall be for the sole benefit of
Landlord and under Landlord's sole control. Landlord shall not be obligated to
insure any furniture, equipment, machinery, goods or supplies which Tenant may
keep or maintain in the Premises, or any additions or alterations within the
Premises made by Tenant after the Commencement Date. Landlord may also carry
such other insurance as Landlord may reasonably deem prudent or advisable,
including, without limitation, liability insurance in such amounts and on such
terms as Landlord shall reasonably determine.
(b) TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's
sole cost and expense and keep in effect from the date of this Lease and at all
times until the end of the Term,
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insurance on all personal property, fixtures and equipment of Tenant and any
additions or alterations within the Premises made by Tenant after the
Commencement Date, insuring such property for the full replacement value of such
property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's
sole cost and expense and keep in effect from the date of this Lease and at all
times until the end of the Term either Comprehensive General Liability insurance
or Commercial General Liability insurance applying to the use and occupancy of
the Premises and the Project, and any part of either, and any areas adjacent
thereto, and the business operated by Tenant, or by any other occupant on the
Premises. Such insurance shall include Broad Form Contractual Liability
insurance coverage. Such coverage shall have a minimum combined single limit of
liability of at least One Million Dollars ($1,000,000.00), and a general
aggregate limit of Two Million Dollars ($2,000,000.00). All such policies shall
be written to apply to all bodily injury, property damage or loss, personal
injury and other covered loss, however occasioned, occurring during the policy
term, shall be endorsed to add Landlord and, provided Landlord provides notice
thereof, any party holding an interest to which this Lease may be subordinated
as an additional insured, and shall provide that such coverage shall be primary
and that any insurance maintained by Landlord shall be excess insurance only.
Such coverage shall also contain endorsements: (i) deleting any employee
exclusion on personal injury coverage; (ii) including employees as additional
insureds; (iii) deleting any liquor liability exclusion; and (iv) providing for
coverage of employer's automobile non-ownership liability. All such insurance
shall provide for severability of interests; shall provide that an act or
omission of one of the named insureds shall not reduce or avoid coverage to the
other named insureds; and shall afford coverage for all claims based on acts,
omissions, injury and damage, which claims occurred or arose (or the onset of
which occurred or arose) in whole or in part during the policy period. Said
coverage shall be written on an "occurrence" basis.
(3) GENERAL INSURANCE REQUIREMENTS. All coverages described
in this Paragraph 8(b) shall be endorsed to provide Landlord with thirty (30)
days notice of cancellation or change in terms and ten (10) days notice in the
event of premium nonpayment. If at any time during the Term the amount or
coverage of insurance which Tenant is required to carry under this Paragraph
8(b) is, in Landlord's reasonable judgment, materially less than the amount or
type of insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are similar
to and operated for similar purposes as the Premises, Landlord shall have the
right to require Tenant to increase the amount or change the types of insurance
coverage required under this Paragraph 8(b) on a one-time basis when and if the
Extension Option is exercised. All insurance policies required to be carried
under this Lease shall be written by companies rated A+XII or better in "Best's
Insurance Guide" and authorized to do business in California. Any deductible
amounts under any insurance policies required hereunder shall be subject to
Landlord's prior, written approval which approval shall not be unreasonably
withheld. Tenant shall deliver to Landlord on or before the Commencement Date,
and thereafter at least thirty (30) days before the expiration dates of the
expiring policies, a certificate evidencing Tenant's insurance issued by the
insurer thereunder, showing that all premiums have been paid for the applicable
policy period; and, in the event Tenant shall fail to
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procure such insurance, or to deliver such policies or certificates, Landlord
may, at Landlord's option and in addition to Landlord's other remedies in the
event of a default by Tenant hereunder, procure the same for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional Rent.
(c) INDEMNIFICATION. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any loss, injury or other
damage to person or property in or about the Premises or any other portion of
the Project (including, without limitation, the common areas), from any cause
whatsoever, including without limitation, water leakage of any character from
the roof, walls, basement or other portion of the Premises or the Project, or
gas, electrical failure, fire, explosion or other happening within the Premises
or the Project, or acts of other tenants of the Project. Tenant shall indemnify,
defend by counsel acceptable to Landlord, protect and hold Landlord harmless
from and against any and all liabilities, losses, costs, damages, injuries or
expenses, including reasonable attorneys' fees and court costs, to the extent
arising out of or related to: (1) claims of injury to or death of persons or
damage to property howsoever and by whomsoever caused, occurring in or about the
Premises; (2) the acts or omissions of Tenant or Tenant's Parties in or about
the Premises or Project; (3) claims for work or labor performed, or for
materials or supplies furnished to or at the request of Tenant in connection
with performance of any work done for the account of Tenant within the Premises
or Project other than the initial improvements to the Premises; and (4) claims
arising from any breach or default on the part of Tenant in the performance of
any covenant contained in this Lease. The foregoing indemnity shall not be
applicable to claims to the extent arising from the active negligence or willful
misconduct of Landlord, its agents or employees. The provisions of this
Paragraph shall survive the expiration or termination of this Lease with respect
to any claims or liability occurring prior to such expiration or termination.
Landlord shall indemnify, defend by counsel acceptable to Tenant,
protect and hold Tenant harmless from and against any and all liabilities,
losses, costs, damages, injuries or expenses, including reasonable attorneys'
fees and court costs, to the extent arising from the active negligence or
willful misconduct of Landlord, its agents or employees.
9. WAIVER OF SUBROGATION
Each party, on behalf of itself and on behalf of anyone claiming under
or through it by way of subrogation or otherwise, waives all rights and causes
of action against the other party, and the officers, employees, agents and
invitees of the other party, for any liability arising out of any loss or damage
in or to the Premises, its contents and other property owned or controlled by
Landlord caused by (i) any peril normally covered under all-risk policies issued
in the geographic area in which the Premises are located (whether or not such
party actually carries such insurance policies), or (ii) if the scope of
coverage is broader than in (i) above, any peril actually covered under the
insurance required to be maintained by such party.
This release and waiver shall be complete and total even if such loss
or damage may have been caused by the negligence of the other party, its
officers, employees, agents or invitees and
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shall not be affected or limited by the amount of insurance proceeds available
to the waiving party, regardless of the reason such deficiency in proceeds. If
any additional charge or increase in premium is made by the insurer because of
this waiver of subrogation, then the party in whose favor the waiver was
obtained shall pay such additional charge or increase in premium; failure to pay
the increase in premium will void the release and waiver benefitting such party
but shall not affect the benefit of the corresponding release and waiver enjoyed
by the other party.
However, if one party's insurance carrier prohibits waiver of
subrogation regardless of premium, then the other party's release and waiver
shall become null and void, it being understood that in this instance each
waiver is given in consideration for the other.
Each party covenants that from and after the date possession of the
Premises is delivered to Tenant its insurance policies will contain waiver of
subrogation endorsements, and that if such endorsements, for any reason
whatsoever, are about to become unavailable, it will give the other party not
less than thirty (30) days prior written notice of such impending
unavailability.
10. LANDLORD'S REPAIRS AND SERVICES
Landlord shall at Landlord's expense maintain the structural soundness
of the structural beams of the roof, building foundations and exterior walls of
the Project in good repair, reasonable wear and tear excepted. The term
"exterior walls" as used herein shall not include windows, glass or plate glass,
doors, special store fronts or office entries. Landlord shall perform on behalf
of Tenant and other tenants of the Project, as an item of Basic Operating Cost,
the maintenance of the Project, and public and common areas of the Project,
including but not limited to the roof, pest extermination, the landscaped areas,
parking areas, driveways, the truck staging areas, rail spur areas, fire
sprinkler systems, sanitary and storm sewer lines, utility services, exterior
lighting, and anything which affects the operation and exterior appearance of
the Project, which determination shall be at Landlord's reasonable discretion.
Except for the expenses directly involving the items specifically described in
the first sentence of this Paragraph 10, Tenant shall reimburse Landlord for all
such costs in accordance with Paragraph 7. Any damage caused by or repairs
necessitated by any act of Tenant may be repaired by Landlord at Landlord's
option and at Tenant's expense. Tenant shall immediately give Landlord written
notice of any need of repairs after which Landlord shall have a reasonable
opportunity to repair same. Landlord shall use reasonable efforts to undertake
such repairs in a manner that will not unreasonably and materially interfere
with the conduct of Tenant's business within the Premises. Any such repairs
shall be performed in a manner consistent with similar office/Warehouse
facilities in the North San Mateo County/South San Francisco area. Tenant hereby
waives all rights to make repairs at the expense of Landlord as provided by any
law, statute or ordinance now or hereafter in effect.
11. TENANT'S REPAIRS
Tenant shall at Tenant's expense maintain all parts of the Premises in
a good clean and secure condition and promptly make all necessary repairs and
replacements, including but not
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limited to all windows, glass, doors, walls and wall finishes, floor covering,
heating, ventilating and air conditioning systems, truck doors, dock bumpers,
dock plates and levelers, plumbing work and fixtures, downspouts, electrical and
lighting systems, and fire sprinklers. Tenant shall at Tenant's expense also
perform regular removal of trash and debris. Tenant shall, at Tenant's own
expense, enter into a regularly scheduled preventive maintenance/service
contract with a maintenance contractor for servicing the heating and air
conditioning systems and equipment within or serving the Premises. The
maintenance contractor and the contract shall be subject to Landlord's
reasonable approval. The service contract must become effective and a copy
thereof delivered to Landlord within thirty (30) days after the Commencement
Date. Any such service contract shall be sufficient to maintain Landlord's
warranties and/or guarantees with respect to such equipment. Further, if the
replacement of such system is necessitated due to Tenant's failure to maintain
such system, Landlord shall replace the system and Tenant shall reimburse
Landlord for the entire cost of such replacement upon Landlord's demand.
Tenant shall also pay upon demand the entire cost of repairing any,
damage to any, portion of the Project caused by the negligence or willful
misconduct of Tenant or Tenant's Parties, or invitees, or by Tenant's failure to
comply with the terms of this Lease.
12. ALTERATIONS
Subject to provisions of the Lease, Tenant shall not make, or allow to
be made, any alterations or additions in, about or to the Premises without
obtaining the prior written consent of Landlord, which consent shall not be
unreasonably withheld with respect to proposed alterations and additions which:
(a) comply with all applicable laws, ordinances, rules and regulations; (b) are
in Landlord's opinion compatible with the Project and its mechanical, plumbing,
electrical, heating/ventilation/air conditioning systems; and (c) will not
interfere with the use and occupancy of any other portion of the Project by any
other tenant or its invitees. Specifically, but without limiting the generality
of the foregoing, Landlord shall have the right to approve all plans and
specifications for the proposed alterations or additions, construction means and
methods, all appropriate permits and licenses, any contractor or subcontractor
to be employed on the work of alteration or additions, and the time for
performance of such work. Tenant shall also supply to Landlord any documents and
information reasonably requested by Landlord in connection with Landlord's
consideration of a request for approval hereunder. Tenant shall reimburse
Landlord for all reasonable costs which Landlord may incur in connection with
granting approval to Tenant for any such alterations and additions, including
any costs or expenses which Landlord may incur in electing to have outside
architects and engineers review said plans and specifications, which costs shall
not exceed ten percent (10%) of the cost of such alteration or addition. All
such alterations or additions shall remain the property of Tenant until
termination of this Lease, at which time they shall be and become the property
of Landlord if Landlord so elects (excluding any warehouse equipment, trade
fixtures and computers); provided, however, that Landlord may, at Landlord's
option, require that Tenant, at Tenant's expense, remove any or all alterations
or additions made by Tenant and restore the Premises by the termination of this
Lease, whether by lapse of time, or otherwise, to their condition existing prior
to the construction of any such alterations or additions. All such removals and
restoration
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shall be accomplished in a good and workmanlike manner so as not to cause any
damage to the Premises or the Project whatsoever. If Tenant fails to so remove
such alterations or additions, Landlord may keep and use them or remove any of
them and cause them to be stored or sold in accordance with applicable law, at
Tenant's sole expense. In addition to and wholly apart from Tenant's obligation
to pay Tenant's Proportionate Share of Basic Operating Cost, Tenant shall be
responsible for and shall pay prior to delinquency any taxes or governmental
service fees, possessory interest taxes, fees or charges in lieu of any such
taxes, capital levies, or other charges imposed upon, levied with respect to or
assessed against its personal property, trade fixtures and equipment, on the
value of the alterations or additions within the Premises and on Tenant's
interest pursuant to this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord.
Notwithstanding any provision of this Lease to the contrary, Tenant may
without Landlord's consent, make non-structural, cosmetic alterations and
additions to the Premises at any time and from time to time provided (i) the per
instance aggregate cost of each such alteration does not exceed twenty thousand
dollars ($20,000.00) or the total cost of all alterations and additions in any
calendar year does not exceed fifty thousand dollars ($50,000.00), and (ii)
Tenant shall have delivered to Landlord in each instance, prior to commencing
any such alterations or additions, ten (10) days prior written notice thereof.
13. SIGNS
All signs, notices and graphics of every kind or character, visible in
or from public view or from the common areas of the Project or the exterior of
the Premises, shall be subject to Landlord's prior written approval which
approval shall not be unreasonably withheld. Tenant shall not place or maintain
any banners whatsoever or any window decor in or on any, exterior window or
doors without Landlord's prior written approval. Any installation of signs or
graphics on or about the Premises and the Project shall be at Tenant's sole cost
and expense and shall be subject to any applicable governmental laws,
ordinances, regulations and to any other requirements imposed by Landlord.
Tenant shall remove all such signs and graphics prior to the termination of this
Lease. Such installations and removals shall be made in such manner as to avoid
injury or defacement of the Premises or the Project, and Tenant shall repair any
such injury or defacement.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice
shall be required, Landlord, and Landlord's agents and representatives, shall
have the right to enter the Premises to inspect the same, to perform such work
as may be permitted or required hereunder, to make repairs or alterations to the
Premises or Project or to other tenant spaces therein, to deal with emergencies,
to post such notices as may be permitted or required by law to prevent the
perfection of liens against Landlord's interest in the Project or to exhibit the
Premises to prospective tenants, purchasers, encumbrancers or others, or for any
other purpose as Landlord
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may deem necessary or desirable; provided, however, that Landlord shall use
reasonable efforts not to unreasonably interfere with Tenant's business
operations. Tenant shall not be entitled to any abatement of Rent by reason of
the exercise of any such right of entry. At any time within six (6) months
prior to the end of the Term, Landlord shall have the right to erect on the
Premises and/or Project a suitable sign indicating that the Premises are
available for lease.
15. UTILITIES
Tenant shall pay directly for all water, gas, heat, air conditioning,
light, power, telephone, sewer, sprinkler charges and other utilities and
services used on or from the Premises, together with any taxes, penalties,
surcharges or the like pertaining thereto. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion, as
determined by Landlord, of all charges jointly serving other premises. Landlord
shall not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein reserved be
abated by reason of: (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any such utilities or
services; (b) the failure to furnish or delay in furnishing any such utilities
or services when such failure or delay is caused by acts of God or the elements,
labor disturbances of any character, or any other accidents or other conditions
beyond the reasonable control of Landlord; or (c) the limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises or
Project. Landlord shall be entitled to cooperate voluntarily and in a reasonable
manner with the efforts of national, state or local governmental agencies or
utility suppliers in reducing energy or other resource consumption. The
obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program.
16. SUBORDINATION
Without the necessity of any additional documents being executed by
Tenant for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to (a) all ground leases or underlying leases that
may now exist or hereafter be executed affecting the Project or any portion
thereof, (b) the lien of any mortgage, deed of trust, assignment of rents and
leases or other security instrument (and any advances thereunder) that may now
exist or hereafter be executed in any amount for which the Project or any
portion thereof, any ground leases or underlying leases, or Landlord's interest
or estate therein, is specified as security; and (c) all modifications,
renewals, supplements, consolidations and replacements thereof, (any one or more
of the interests specified in (a), (b) or (c) above shall be referred to as an
"Encumbrance") provided Tenant receives a standard commercial lender
non-disturbance agreement executed by the party who is the holder of the
Encumbrance. Such agreement shall provide that in the event of termination,
foreclosure or default by Landlord under the Encumbrance, provided Tenant is not
in default under the terms and conditions of this Lease beyond applicable
notice, grace, and cure provisions this Lease shall become a direct lease
between such Encumbrance holder, as landlord, and Tenant. Notwithstanding the
foregoing, Landlord shall have the right to subordinate this Lease, or cause
this Lease to be subordinated, to
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any such ground leases, underlying leases or liens. If any ground lease or
underlying lease terminates for any reason or any mortgage, deed of trust,
assignment of rents and leases or other security instrument is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination, attain to and become the tenant of the
successor in interest to Landlord and such successor in interest shall recognize
the leasehold estate of Tenant and not disturb the possession, use and enjoyment
of Tenant under this Lease. Within ten (10) days after request by Landlord,
Tenant shall execute and deliver any additional documents evidencing Tenant's
attornment or the subordination of this Lease with respect to any such ground
leases or underlying leases or any such mortgage or deed of trust, in the form
requested by Landlord or by any ground landlord, mortgagee, or beneficiary under
a deed of trust. Tenant's failure to do so shall be a material default under
this Lease. In addition, Tenant hereby irrevocably appoints Landlord as the
attorney-in-fact of Tenant to execute and deliver any such document or documents
for or in the name of Tenant.
17. MORTGAGEE PROTECTIONS
If any lender requires, as a condition to its lending funds the
repayment of which is to be secured by a mortgage or trust deed on the Project
or any portion thereof, that certain modifications be made to this Lease, which
modifications will not require Tenant to pay any additional amounts or otherwise
change materially the rights or obligations of Tenant hereunder, Tenant shall,
upon Landlord's request, execute appropriate instruments effecting such
modifications.
In the event of any act or omission by Landlord which would give Tenant
the right to damages from Landlord or the right to terminate this Lease, Tenant
will not sue for such damages or exercise any such right to terminate until a)
it shall have given written notice of the act or omission to Landlord and to
the holder(s) of any mortgage or deed of trust, if the name and address of such
holder(s) have been furnished to Tenant, and b) such holder(s) shall have been
given a reasonable opportunity, to cure Landlord's default, including time to
obtain possession of the Project or portion thereof by power of sale or judicial
foreclosure or other appropriate legal proceedings, if such should prove
necessary to effect a cure.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after receipt of
written notice in accordance with Paragraph 32, to deliver to Landlord, or
Landlord's designee, an estoppel certificate stating that this Lease is in full
force and effect, the date to which Rent has been paid, the unexpired portion of
this Lease, and such other matters pertaining to this Lease as may be reasonably
requested by Landlord. Failure by Tenant to execute and deliver such certificate
shall constitute an acceptance of the Premises and acknowledgment by Tenant that
the statements included are true and correct without exception. Landlord and
Tenant intend that any statement delivered pursuant to this Paragraph may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Project or any interest therein.
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19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, the
Security Deposit as stated in the Basic Lease Information, which sum shall be
held by Landlord, without obligation for interest, as security for the
performance of Tenant's covenants and obligations under this Lease. The Security
Deposit is not an advance rental deposit or a measure of damages incurred by
Landlord in case of Tenant's default. Upon the occurrence of any event of
default by Tenant, Landlord from time to time, without prejudice to any other
remedy provided herein or provided by law, use such fund to the extent necessary
to make good any arrears of Rent or other payments due to Landlord hereunder,
and any other damage, injury, expense or liability caused by such event of
default, and Tenant shall pay to Landlord, on demand, the amount so applied in
order to restore the Security Deposit to its original amount. Although the
Security Deposit shall be deemed the property of Landlord, any remaining balance
of such deposit shall be returned by Landlord to Tenant at such time after
termination of this Lease that all of Tenant's obligations under this Lease have
been fulfilled. Landlord may use and commingle the Security Deposit with other
funds of Landlord.
20. LANDLORD'S DEFAULT AND TENANT'S REMEDIES
Landlord shall not be in default unless Landlord fails to perform any of
its obligations under this Lease and fails to cure such default within thirty
(30) days after written notice from Tenant specifying the nature of such default
where such default could reasonably be cured within said thirty (30) day period,
or fails to commence such cure within said thirty (30) day period and thereafter
continuously with due diligence prosecute such cure to completion where such
default could not reasonably be cured within said thirty (30) day period. Tenant
waives the provisions of Section 1932(l), 1941 and 1942 of the California Civil
Code and/or any similar or successor law regarding Tenant's right to terminate
this Lease or to make repairs and deduct the expenses of such repairs from the
Rent due under the Lease. Tenant hereby waives any right of redemption or relief
from forfeiture under the laws of the State of California, or under any other
present or future law, including the provisions of Sections 1174 and 1179 of the
California Code of Civil Procedure.
The liability of Landlord to Tenant for any default by Landlord under
the terms of this Lease are not personal obligations of the individual or other
partners, directors, officers and shareholders of Landlord, and Tenant agrees to
look solely to Landlord's interest in the Project for the recovery of any amount
from Landlord, and shall not look to other assets of Landlord nor seek recourse
against the assets of the individual or other partners, directors, officers and
shareholders of Landlord. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any Encumbrance.
The limitation of this Article shall not apply to or limit (i) any
injunctive or other equitable or declaratory action to which Tenant may be
entitled (notwithstanding that such actions are in personam in nature), or (ii)
any other action against Landlord which does not
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involve the personal liability or other assets of Landlord or it partners,
directors, officers or shareholders
21. ASSIGNMENT AND SUBLETTING
(A) LANDLORD'S CONSENT; DEFINITIONS. Landlord's and Tenant's
agreement with regard to Tenant's right to transfer all or part of its interest
in the Premises is as expressly set forth in this Paragraph 21. Except upon
Landlord's prior written consent, which consent shall not (subject to Landlord's
rights under Paragraph 21 (d), below) be unreasonably withheld, delayed or
conditioned, neither this Lease nor all or any part of the leasehold interest
created hereby shall, directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant or Tenant's legal representatives or successors
in interest (collectively an "assignment") and neither the Premises nor any part
thereof shall be sublet or be used or occupied for any purpose by anyone other
than Tenant (collectively, a "sublease"). Tenant agrees that any instrument by
which Tenant assigns or sublets all or any portion of the Premises shall
expressly provide that the subtenant or assignee may not further assign or
sublet the assigned or sublet space without Landlord's prior written consent and
that the assignee or subtenant will comply with all of the provisions of this
Lease and that Landlord may enforce the Lease provisions directly against such
assignee or subtenant. Any assignment or subletting without Landlord's prior
written consent shall, at Landlord's option, be void and shall constitute an
event of default entitling Landlord to terminate this Lease and to exercise all
other remedies provided in Paragraph 26 of this Lease.
Landlord shall be deemed to have acted reasonably denying its consent to
an assignment or subletting if any of the following situations exist or may
exist: (i) the proposed assignment or sublease would materially increase the
operating costs for the Project or materially increase the burden on the Project
services; (ii) the assignment or sublease is to a current tenant of the Project
or a prospective tenant of the Project with whom Landlord is then negotiating;
(iii) the contemplated use of the Premises is not the Permitted Use set forth in
the Basic Lease Information, (iv) in Landlord's reasonable judgment, the
proposed assignee or subtenant lacks sufficient business reputation or
experience to operate a successful business of the type and quality permitted
under this Lease; (v) in Landlord's reasonable business judgment, the present
net worth of the proposed assignee or subtenant is inadequate; (vi) in the case
of a subletting of less than the entire Premises, the sublease would result in
the division of the Premises into more than two subparcels, would create a
subparcel of a configuration that is not suitable for normal leasing purposes,
or would require access to be provided through space ]eased or held for lease to
another tenant, or would require improvements to be made outside of the
Premises, (vii) at the time consent is required or at any time prior to the
granting of consent, Tenant is in default under this Lease or would be in
default but for the pendency of any grace or cure period afforded to Tenant; or
(viii) the proposed assignee or sublessee is a governmental agency. Landlord's
foregoing rights and options shall continue throughout the entire term of this
Lease.
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For purposes of this Paragraph 21, the following events shall be deemed
an assignment or sublease, as appropriate: (i) the issuance of equity interests
(whether stock, partnership interests or otherwise) in Tenant or any subtenant
or assignee, or any entity controlling any of them, to any person or group of
related persons, in a single transaction or a series of related or unrelated
transactions, such that, following such issuance, such person or group shall
have Control (as defined below) of Tenant; or (ii) a transfer of Control of
Tenant or any subtenant or assignee, or any entity controlling any of them, in a
single transaction or a series of related or unrelated transactions (including,
without limitation, by consolidation, merger, acquisition or reorganization),
except that the transfer of outstanding capital stock or other listed equity
interests by persons or parties other than "insiders" within the meaning of the
Securities Exchange Act of 1934, as amended, through the "over-the-counter"
market or any recognized national or international securities exchange, shall
not be included in determining whether Control has been transferred. "Control"
shall mean direct or indirect ownership of 50% or more of all of the voting
stock of such corporation or 50% or more of all the legal and equitable interest
in any other business entity.
If this Lease is assigned, whether or not in violation of the terms of
this Lease, Landlord may collect rent from the assignee. If the Premises or any
part thereof is sublet, Landlord may, upon an event of default by Tenant
hereunder, collect rent from the subtenant. In either event, Landlord may apply
the amount collected from the assignee or subtenant to Tenant's monetary
obligations hereunder. If Landlord approves of an assignment or subletting, or
if an unconsented but permitted assignment or subletting occurs pursuant to the
terms of the Lease, the right of first refusal and the option to extend shall
not run to the subtenant or assignee, it being agreed by the parties hereto that
any such rights and options are personal to Tenant named herein and may not be
transferred; provided, however, notwithstanding the foregoing, the right of
first refusal and option to extend shall run to the subtenant or assignee in
the event, but only to the extent of, any public offering of Tenant's shares or
the sale of all or substantially all of Tenant's assets.
The consent by Landlord to an assignment or subletting hereunder shall
not relieve Tenant or any assignee or subtenant from obtaining Landlord's
express prior written consent to any other or further assignment or subletting,
which consent shall not (subject to Landlord's rights under Paragraph 21 (d)
below) be unreasonably withheld. Neither an assignment or subletting nor the
collection of rent by Landlord from any person other than Tenant, nor the
application of any such rent as provided in this Paragraph 21 (a) shall be
deemed a waiver of any of the provisions of this Paragraph 21 (a) or release
Tenant from its obligation to comply with the provisions of this Lease and
Tenant shall remain fully and primarily liable for all of Tenant's obligations
under the Lease.
(b) Processing Expenses. Tenant shall pay to Landlord the amount of
Landlord's reasonable cost of processing each proposed assignment or subletting
(including, without limitation, attorneys' and other professional fees,
collectively "Processing Costs"), and the amount of all direct and indirect
expense incurred by Landlord arising from the assignee or sublessee taking
occupancy of the subject space. Notwithstanding anything to the contrary herein,
Landlord shall not be required to process any request for Landlord's consent to
an
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assignment or subletting until Tenant has paid to Landlord the amount of
Landlord's estimate of the Processing Costs and all other direct and indirect
expenses of Landlord and its agents arising from the assignee or subtenant
taking occupancy.
(C) CONSIDERATION TO LANDLORD. In the event of any assignment or
sublease, Landlord shall be entitled to receive as additional rent hereunder,
and Tenant hereby assigns to Landlord, any consideration (including, without
limitation, payment for leasehold improvements) paid by the assignee or
subtenant for the assignment or sublease and, in the case of a sublease,
one-half (1/2) the amount by which the total monthly rent payable for the sublet
space by the subtenant exceeds the total amount of Base Rent under Paragraph 6
hereof and Basic Operating Cost under Paragraph 7 hereof (such excess being
hereinafter referred to as "Bonus Rental"); provided, however, that Tenant
shall first be entitled to recover out of such assignment consideration or Bonus
Rental, reasonable brokerage commissions, reasonable attorneys' fees and tenant
improvement costs actually incurred by Tenant in connection with such assignment
or subletting (such tenant improvement costs to be amortized over the remaining
term of the Lease, in the case of an assignment, or over the term of the
sublease, in the case of a sublease). Landlord's consent to any assignment shall
be conditional upon Landlord's receipt of the consideration paid by the proposed
assignee for the assignment; and Landlord's consent to any subletting shall be
conditional upon Landlord's receipt of any Bonus Rental, which shall be paid by
Tenant to Landlord each month at the same time as Base Rent. Notwithstanding the
foregoing, Landlord shall have the right to require, as a condition to its
approval of a subletting, that the proposed subtenant pay Bonus Rental directly
to Landlord. If there is more than one sublease under this Lease, the Bonus
Rental (if any) to be paid by Tenant to Landlord pursuant to the provisions of
this Paragraph 21 (c) shall be separately calculated for each sublease and
amounts due Landlord with regard to any one sublease may not be offset against
rental and other consideration due under any other sublease.
(D) PROCEDURES. If Tenant desires to assign this Lease or any
interest therein or sublet all or part of the Premises (each hereinafter a
"transfer"), Tenant shall give Landlord written notice thereof designating the
space proposed to be transferred and the terms proposed. Landlord shall have the
prior right and option (to be exercised by written notice to Tenant given within
thirty (30) business days after receipt of Tenant's notice) to do any of the
following:
(i) In the event of a proposed subletting, Landlord may
elect to sublet such space from Tenant at the rental and other terms set forth
in Tenant's notice to Landlord setting forth the proposed terms of such
subletting, in which event, Landlord shall have the further right to sublet to
on such terms and conditions as it may desire (provided the foregoing shall not
apply to any additional space leased by Tenant pursuant to Paragraph 1 (b)
above).
(ii) Landlord may elect to permit Tenant to assign the Lease
or sublease such part of the Premises, in which event Tenant may do so, but
without being released of its liability for the performance of all its
obligations under the Lease.
(E) DOCUMENTATION. Without limiting any other conditions stated in
this Paragraph 21, no permitted subletting by Tenant shall be effective until
there has been delivered
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to Landlord a counterpart of the sublease in which the subtenant agrees to be
and remain jointly and severally liable with Tenant for the payment of rent
pertaining to the sublet space and for the performance of all of the terms and
provisions of this Lease; provided, however, that the subtenant shall be liable
to Landlord for rent only in the amount set forth in the sublease. Without
limiting any other conditions stated in this Paragraph 21, no permitted
assignment shall be effective unless and until there has been delivered to
Landlord a counterpart of the assignment in which the assignee assumes all of
Tenant's obligations under this Lease arising on or after the date of the
assignment. The failure or refusal of a subtenant or assignee to execute any
such instrument shall not release or discharge the subtenant or assignee from
its liability as set forth above.
(F) NO MERGER. Without limiting any of the provisions of this
Paragraph 21, if Tenant has entered into any subleases of any portion of the
Premises, the voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation by Landlord and Tenant, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or subtenancies or,
at the option of Landlord, operate as an assignment to Landlord of any or all
such subleases or subtenancies.
(G) CONSENT NOT REQUIRED. Not withstanding anything to the contrary
set forth in this Paragraph 17, Tenant may assign the Lease at any time, or
sublease all or part of the Premises, without the receipt of Landlord's consent
but upon notice to Landlord, to any of the following (hereinafter each an
"Affiliate"): (i) an entity which is controlled by, controls, or is under common
control with Tenant, (ii) an entity with which Tenant merges or consolidates,
(iii) a purchaser of all or substantially all of Tenant's stock or assets, so
long as such transaction was not entered into as a subterfuge to avoid the
obligations and restrictions of the Lease; (iv) a sublease of a portion of the
premises which is not in excess of ten thousand (10,000) square feet (this
clause does not apply with respect to an assignment); or (v) to any entity to
which Landlord's consent to assignment or subletting is otherwise not required
pursuant to the terms of this Lease. The term "control," as used in this
Paragraph 17(g), have the same meaning as "Control," as defined in Paragraph
17(a) above. Landlord's consent shall also not be required for any public
offering of Tenant's shares pursuant to which all or a part of the shares of
Tenant are traded on a recognized securities exchange including the "over the
counter" market.
22. CONDEMNATION
If all or any substantial part of the Premises or the Project shall be
taken or appropriated by any public or quasi-public authority under the power of
eminent domain such that Tenant's ability to use the Premises or the Project for
the Permitted Use is materially impaired, either party hereto shall have the
right, at its option, to terminate this Lease. If all or any part of the
building of which the Premises are a part (other than the Premises themselves)
shall be taken or appropriated by any public or quasi-public authority under any
power of eminent domain, Landlord may terminate this Lease. In either of such
events, Landlord shall be entitled to, and Tenant assigns to Landlord any rights
of Tenant to any and all income, rent, award, or any interest therein whatsoever
which may be paid or made in connection with such public or
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quasi-public use or purpose, and Tenant shall have no claim against Landlord for
the value of any unexpired term of this Lease; provided, however, that Tenant
shall be entitled to any award made separately to Tenant to compensate it for
loss of good will, damage to Tenant's business, moving expenses, and the
unamortized cost of any trade fixtures and alterations or additions installed by
and at Tenant's expense. If a part of the Premises shall be so taken or
appropriated and neither party hereto shall elect to terminate this Lease, the
Base Rent thereafter to be paid shall be equitably reduced.
23. CASUALTY DAMAGE
(A) LANDLORD'S DUTY TO RESTORE. If the Premises are damaged by any
peril after the Commencement Date, Landlord shall diligently restore the
Premises unless the Lease is terminated by Landlord pursuant to the further
provisions hereof. All insurance proceeds available from any fire and property
damage insurance on the Premises and/or the building in which the Premises are
located, including the tenant improvements located in the Premises, but
excluding insurance on Tenant's Property (defined below), carried by Landlord or
Tenant shall be paid to and become the property of Landlord. If this lease is
terminated pursuant to the further provisions hereof, below, then all insurance
proceeds available from insurance carried by Tenant which covers loss to
property that is Landlord's property or would become Landlord's property on the
termination of this Lease shall be paid to and become the property of Landlord.
If this Lease is not so terminated, then upon receipt of the insurance proceeds
(if the loss is covered by insurance) and the issuance of all necessary
governmental permits, Landlord shall commence and prosecute to completion the
restoration of the Premises to the extent then allowed by law and only to the
extent of insurance proceeds received by Landlord, to substantially the same
condition in which the Premises were immediately prior to such damage; provided,
however, that Landlord's obligation shall be limited to restoring the Premises
to their condition as of the Commencement Date, excluding any alterations or
additions made by Tenant, trade fixtures, equipment and/or personal property
(collectively "Tenant's Property") constructed or installed by Tenant in the
Premises. Tenant shall forthwith replace or fully repair all of Tenant's
Property.
(B) LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within ninety (90) days after the date of such damage:
(i) The Premises or the building in which the Premises are
located are damaged by any peril covered by valid and collectible insurance
actually carried by Landlord and in force at the time of such damage or
destruction, to such an extent that the estimated restoration cost exceeds
twenty-five percent (25%) of the then actual replacement cost of the Premises or
the building in which the Premises are located, respectively;
(ii) The Premises or the building in which the Premises are
located are damaged by any peril not covered by valid and collectible insurance
actually carried by the Landlord and in force at the time of such damage or
destruction, to such an extent that the
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estimated restoration cost exceeds five percent (5%) of the then actual
replacement cost of the Premises or building in which the Premises are located,
respectively;
(iii) The Premises or the building in which the Premises are
located are materially damaged by any peril during the last twelve (12) months
of the Term;
(iv) The Premises or the building in which the Premises are
located are damaged by any peril and, because of the laws then in force, the
Premises or the building in which the Premises are located, as the case may be,
1) may not be restored at reasonable cost to substantially the same condition in
which they were prior to such damage, or 2) may not be used for the same use
being made thereof before such damage, whether or not restored as required by
this Paragraph;
(v) The Premises or the building in which the Premises are
located are damaged or destroyed and, in the opinion of Landlord's architect or
engineer (which shall be binding), the repair or restoration of the same cannot
be substantially completed within one hundred and eighty (180) days after the
date of casualty; or
(vi) Tenant, at the time of such damage, has committed an
Event of Default.
Any notice of termination given under this Paragraph 23(b) shall be effective
thirty (30) days after the date of delivery to Tenant.
(C) TENANT'S RIGHT TO TERMINATE. Tenant shall have the option to
terminate this Lease in the event one or more of the following occurs:
(i) The Premises or the Project are damaged or destroyed
and, in the reasonable opinion of Landlord's architect or engineer (which shall
be binding), the repair or restoration of the same cannot be substantially
completed within two hundred seventy (270) days after the date of casualty. If
such determination is made, Landlord shall notify Tenant thereof within ninety
(90) days after the date of such casualty and Tenant shall have fifteen (15)
days from its receipt of such notice in which to deliver to Landlord written
notice of termination specifying a termination date not more than thirty (30)
days after the date Landlord's notice was delivered to Tenant. If Tenant does
not elect to terminate this Lease as provided above, but Landlord, for any
reason whatsoever, fails to commence construction to restore the Premises within
two hundred (200) days after the date of the casualty, as and to the extent such
date may be extended on account of Tenant Delays, Tenant shall have the right to
terminate this Lease by notice to Landlord thereof at any time before Landlord
commences construction to restore the Premises. If Tenant further does not elect
to terminate this Lease as provided above, and Landlord, for whatever reason,
does not deliver the Premises to Tenant with the Premises substantially
restored, subject only to "punch list" items, on or before that date which is
two hundred seventy (270) days after the date of casualty, as and to the extent
such date may be extended on account of Tenant Delays, Tenant shall have the
right to terminate this Lease at any time thereafter upon forty-five (45) days
prior written notice to Landlord provided that if Landlord restores the Premises
as provided herein within such forty-five (45) day period, this
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Lease shall remain in full force and effect. Tenant's right to terminate this
Lease as provided above shall be Tenant's sole remedy for any delay in
commencing construction or delivery the Premises and Landlord shall not be
liable to Tenant for any loss or damage therefrom.
(ii) The Premises are materially damaged by any peril during
the last twelve (12) months of the term and such damage materially interferes
with Tenant's use of the Premises, in which event Tenant may exercise its option
to terminate the Lease by delivering written notice of such termination to
Landlord within fifteen (15) days after the date of casualty, and specifying in
such notice a termination date not more than thirty (30) days after the date of
casualty.
(iii) The Premises or the building in which the Premises are
located are damaged by peril and, because of the laws then in force, the
Premises or the building in which such Premises are located, as the case may be,
may not be used for the same use being made thereof before such damage, whether
or not restored as required by this Paragraph 23.
(D) ABATEMENT OF RENT. In the event of damage which does not result
in the termination of this Lease, the Base Rent shall be temporarily abated
commencing on the date of damage and continuing during the period of restoration
in proportion to the degree to which Tenant's use of the Premises is impaired by
such damage, as reasonably determined by Landlord. Tenant shall not be entitled
to any compensation from Landlord for loss of Tenant's Property or loss to
Tenant's business caused by such damage or restoration. Tenant hereby waives the
provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of
the California Civil Code, and the provisions of any similar law, hereinafter
enacted.
24. HOLDING OVER
If Tenant shall retain possession of the Premises or any portion thereof
without Landlord's consent following the expiration of the Lease or sooner
termination for any reason, then Tenant shall pay to Landlord for each day of
such retention one hundred fifty percent (150%) the amount of the daily rental
as of the last month prior to the date of expiration or termination. Tenant
shall also indemnify, defend, protect and hold Landlord harmless from any loss,
liability or cost, including reasonable attorneys fees, resulting from delay by
Tenant in surrendering the Premises, including, without limitation, any claims
made by any succeeding tenant founded on such delay. Acceptance of Rent by
Landlord following expiration or termination shall not constitute a renewal of
this Lease, and nothing contained in this Paragraph 24 shall waive Landlord's
right of reentry or any other right. Unless Landlord consents in writing to
Tenant's holding over, Tenant shall be only a Tenant at sufferance, whether or
not Landlord accepts any Rent from Tenant while Tenant is holding over without
Landlord's written consent. Additionally, in the event that upon termination of
the Lease, Tenant has not fulfilled its obligation with respect to repairs and
cleanup of the Premises or any other Tenant obligations as set forth in this
Lease, then Landlord shall have the right to perform any such obligations as it
deems necessary at Tenant's sole cost and expense, and any time required by
Landlord to complete such obligations shall be considered a period of holding
over a the terms of this Paragraph 24 shall apply.
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25. DEFAULT
If Tenant shall fail to pay, as and when due, any installment of Base
Rent or any other sum required to be paid by Tenant under this Lease or under
the terms of any other agreement between Landlord and Tenant, or if default
shall be made in the observance or performance of any of the other covenants or
conditions in this Lease which Tenant is required to observe and perform and
such default shall continue for ten (10) days after written notice to Tenant
(unless such default is not reasonable capable of being cured within such ten
(10) day period, in which event Tenant shall not be in default if Tenant
commences to cure the default within such ten (10) day period and thereafter
diligently prosecutes the cure to completion), or if Tenant is in default of any
of its obligations under Paragraph 4(d) above (Hazardous Materials), below and
if such default is not cured by Tenant promptly after written notice to Tenant,
or if the interest of Tenant in this Lease shall be levied on under execution or
other legal process, or if any voluntary petition in bankruptcy or for corporate
reorganization or any similar relief shall be filed by Tenant, or if any
involuntary petition in bankruptcy shall be filed against Tenant under any
federal or state bankruptcy or insolvency act and shall not have been dismissed
within thirty (30) days from the filing thereof, or if a receiver shall be
appointed for Tenant or any of the property of Tenant by any court and such
receiver shall not have been dismissed within thirty (30) days from the date of
appointment, or if Tenant shall make an assignment for the benefit of creditors,
if Tenant shall admit in writing Tenant's inability to meet Tenant's debts as
they mature, or if Tenant shall abandon or vacate (for longer than ten (10)
consecutive days) the Premises during the Term, then Landlord may treat the
occurrence of any one or more of the foregoing events as a breach of this Lease
("Event of Default"), and thereupon at its option may, with or without further
notice or demand of any kind to Tenant or any other person, have any one or more
of the remedies described in Paragraph 26, below, in addition to all other
rights and remedies provided at law or in equity or elsewhere in this Lease.
26. REMEDIES UPON DEFAULT
If an Event of Default has occurred, then Landlord, besides any other
rights and remedies of Landlord at law or equity, shall have the right either to
terminate Tenant's right to possession of the Premises and thereby terminate
this Lease or to have this Lease continue in full force pursuant to Section
1951.4 of the California Civil Code ("lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has right to sublet or assign, subject only to reasonable limitations").
Should Landlord elect to terminate Tenant's right to possession of the
Premises and terminate this Lease, then Landlord shall have the immediate right
of entry and may remove all persons and property from the Premises. Such
property so removed may be stored in a public warehouse or elsewhere at the cost
and for the account of Tenant. Upon such termination, Landlord, in addition to
any other rights and remedies (including rights and remedies under Subparagraphs
(1), (2) and (4) of Subdivision (a) of Section 1951.2 of the California Civil
Code, or any amendment thereto), shall be entitled to recover from Tenant the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that the Tenant proves could be reasonably avoided. The
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worth at the time of award of the amount referred to in this paragraph shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award plus one percent. As used herein,
the term "time of award" shall mean either the date upon which Tenant pays to
Landlord the amount recoverable by Landlord as hereinabove set forth or the date
of entry of any determination, order or judgment of any court or other legally
constituted body.
Should Landlord, following any Event of Default by Tenant, elect to keep
this Lease in full force and effect, with Tenant retaining the right of
possession of the Premises (notwithstanding the fact the Tenant may have
abandoned the ]eased Premises), then Landlord, besides all other rights and
remedies Landlord may have at law or equity, shall have the right to enforce all
of Landlord's rights and remedies under this Lease, including but not limited to
the right to recover the installments of rent as they become due under this
Lease and the right to enter upon the Premises for the purposes of maintaining,
preserving and/or attempting to relet the same. Notwithstanding any such
election to have this Lease remain in full force and effect, Landlord may at any
time thereafter elect to terminate Tenant's right to possession of said Premises
and thereby terminate this Lease for any previous Event of Default which remains
uncured, or for any subsequent Event of Default.
Any and all sums in addition to monthly rent payable by Tenant to
Landlord pursuant to the provisions of this Lease or arising from Tenant's use
and occupancy of the Premises (including without limitation cost of improvements
and alterations to the Premises for Tenant) shall be deemed "rent" under this
Lease and default by Tenant in the payment of any such sums shall entitle
Landlord to all the same remedies as would be applicable in the case of
non-payment of monthly rent hereunder.
27. LATE CHARGE
If any installment of Rent is not paid promptly when due, such amount
shall bear interest at the annual interest rate equal to the lesser of the
"prime rate," as announced from time to time by Wells Fargo Bank, N.A. (San
Francisco), plus five (5) percentage points, or the maximum interest rate
allowed by law ("Applicable Interest Rate") from the date on which said payment
shall be due until the date on which Landlord shall receive said payment. In
addition, Tenant shall pay Landlord a late charge equal to five percent (5%) of
the delinquency, to compensate Landlord for the loss of the use of the amount
not paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
difficult to compute and the amount stated herein represents a reasonable
estimate thereof. This provision shall not relieve Tenant of Tenant's obligation
to pay Rent at the time and in the manner herein specified.
Notwithstanding the foregoing, Landlord shall not impose such late
charge until Landlord has notified Tenant in writing that payment is delinquent,
and Tenant has not made such payment within two (2) business days after receipt
of such notice, provided that Landlord shall only be required to give such
written notice twice in any calendar year, and if any installment of Rent is
late thereafter, Landlord may, without notice, impose such late charge.
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28. LIENS
Tenant shall keep the Premises free from liens arising out of or related
to work performed, materials or supplies furnished or obligations incurred by
Tenant or in connection with work made, suffered or done by or on behalf of
Tenant in or on the Premises or Project. In the event that Tenant shall not,
within ten (10) days following the imposition of any such lien, cause the same
to be released of record by payment or posting of a proper bond, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but not the obligation, to cause the same to be released by such means as
Landlord shall deem proper, including payment of the claim giving rise to such
lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by
Landlord in connection therefor shall be payable to Landlord by Tenant on demand
with interest at the Applicable Interest Rate. Landlord shall have the right at
all times to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Project and any other party having an interest
therein, from mechanics' liens, and Tenant shall give Landlord not less than ten
(10) business days prior written notice of the commencement of any work in the
Premises which could lawfully give rise to a claim for mechanics' liens.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Project or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform all of the obligations of "Landlord", to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Project.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any sum
of money, other than Base Rent and Basic Operating Cost, required to be paid by
Tenant hereunder or shall fail to perform any other act on Tenant's part to be
performed hereunder, and such failure shall continue for five (5) days after
notice thereof by Landlord, Landlord may, but shall not be obligated to do so,
and without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such act on Tenant's part to be made or performed.
All sums, so paid by Landlord and all necessary incidental costs together with
interest thereon at the Applicable Interest Rate from the date of such payment
by Landlord shall be payable to Landlord on demand, and Tenant covenants to pay
such sums, and Landlord shall have, in addition to any other right or remedy of
Landlord, the
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<PAGE> 31
same right and remedies in the event of the non-payment thereof by Tenant as in
the case of default by Tenant in the payment of Base Rent and Basic Operating
Cost.
31. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
(A) RENT. All Rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at the address set forth in
the Basic Lease Information, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord under the terms of this
Lease shall not be deemed satisfied until such Rent and other amounts have been
actually received by Landlord.
(B) OTHER. All notices, demands, consents and approvals which may or
are required to be given by either party to the other hereunder shall be in
writing and either personally delivered, sent by commercial overnight courier,
or mailed, certified or registered, postage prepaid, and addressed to the party
to be notified at the address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from time to
time designate by written notice in accordance with the terms of this Paragraph.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant hereby designates as its agent to receive the service of all default
notices and notice of commencement of unlawful detainer proceedings the person
in charge of or apparently in charge of occupying the Premises at the time, and,
if there is no such person, then such service may be made by attaching the same
on the main entrance of the Premises.
31
<PAGE> 32
33. ATTORNEYS' FEES
In the event Landlord places the enforcement of this Lease, or any part
hereof, or the collection of any Rent due hereunder, or the recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorney's fees and court costs. In
any action which Landlord or Tenant brings to enforce its respective rights
hereunder, the losing party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. FINANCIAL
At the request of Landlord given not more than once in any calendar
year, Tenant shall provide to Landlord Tenant's current financial statement or
other information discussing financial worth of Tenant, which Landlord shall use
solely for purposes of this Lease and in connection with the ownership,
financing, management and disposition of the Project,
35. FORCE MAJEURE
Except as otherwise provided herein, whenever a period of time is herein
prescribed for action to be taken by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the control of Landlord.
36. BROKERAGE COMMISSION
Landlord and Tenant each represent and warrant to the other that, other
than Tenant's broker identified in the Basic Lease Information (the "Broker"),
no broker, agent, or finder negotiated or was instrumental in negotiating or
consummating this Lease on its behalf and that it knows of no broker, agent, or
finder, other than the Broker, who are, or might be, entitled to a commission or
compensation in connection with this Lease. In the event of any such claims for
additional brokers' or finders' fees or commissions in connection with the
negotiation, execution or consummation of this Lease, then Landlord shall
indemnify, save harmless and defend Tenant from and against such claims, and any
liability, loss, damage, or expense (including attorneys' fees and costs) if
they shall be based upon any statement, representation or agreement by Landlord,
and Tenant shall indemnify, save harmless and defend Landlord from and against
such claims, and any liability, loss, damage, or expense (including attorneys'
fees and costs) if they shall be based upon any statement, representation or
agreement made by Tenant.
37. MISCELLANEOUS
(A) GENERAL. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in masculine gender
include the feminine and neuter. If there be more than one Tenant the
obligations hereunder imposed upon Tenant shall be joint
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<PAGE> 33
and several. The marginal headings and titles to the Paragraphs of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof
(B) TIME. Time is of the essence regarding this Lease and all of its
provisions.
(C) CHOICE OF LAW. This Lease shall in all respects be governed by
the laws of the State of California.
(D) ENTIRE AGREEMENT. This Lease, together with the Schedules and
Exhibits attached hereto, contains all the agreements of the parties hereto and
supersedes any previous negotiations. There have been no representations made by
the Landlord or understandings made between the parties other than those set
forth in this Lease and the Schedules and Exhibits attached hereto.
(E) MODIFICATION. This Lease may not be modified, amended or
terminated except by a written instrument signed by the parties hereto.
(F) SEVERABILITY. If, for any reason whatsoever, any of the
provisions hereof shall be unenforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
(G) RECORDATION. Tenant shall not record this Lease or a short form
thereof.
(H) EXAMINATION OF LEASE. Submission of this Lease to Tenant does
not constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
(I) ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount
than the Rent nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies.
(J) EASEMENTS. Landlord may grant easements on the Project and
dedicate for public use portions of the Project without Tenant's consent;
provided that no such grant or dedication shall materially interfere with
Tenant's use of the Premises. Upon Landlord's demand, Tenant shall execute,
acknowledge and deliver to Landlord documents, instruments, maps and plats
necessary to effectuate Tenant's covenants hereunder.
(K) DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge
that this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease and
that no presumption shall be created against Landlord because Landlord drafted
this Lease. Except as otherwise specifically set forth in this Lease, with
respect to any consent, determination or estimation of Landlord required in this
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<PAGE> 34
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall be made in Landlord's good faith opinion, whether objectively reasonable
or unreasonable.
(L) NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands adjacent to
or in the vicinity of the Project shall in no way affect this Lease or impose
any liability on Landlord.
(M) NO THIRD PARTY BENEFIT. This Lease is a contract between
Landlord and Tenant and nothing herein is intended to create any third party
benefit.
(N) SUCCESSORS AND ASSIGNS. Subject to this Paragraph 21 hereof,
this Lease shall be binding upon and inure to the benefit of the heirs,
successors and assigns of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year
first above written.
"Landlord" "Tenant"
/s/ STANLEY D. MCDONALD O.S.I. CORPORATION
- ------------------------------- a California corporation
STANLEY D. MCDONALD
/s/ NORMAN H. SCHEIDT By: /s/ JOHN D. FRUTH
- ------------------------------- -------------------------------
NORMAN H. SCHEIDT
Its: PRESIDENT
------------------------------
/s/ HERBERT A. WEST
- -------------------------------
HERBERT A. WEST
McDONALD LTD., a Washington limited
partnership
By: /s/ STANLEY B. MCDONALD
-------------------------------
Its: PARTNER
------------------------------
34
<PAGE> 1
Exhibit 10.13
PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY
SAN JUAN, PUERTO RICO
LEASE CONTRACT
Project # T-1315-0-80
Location: Santa Isabel
THIS AGREEMENT ENTERED into on September 14, 1984. by:
(AS LANDLORD) THE PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY and,
(AS TENANT) HYDRON PUERTO RICO, INC.
WITNESSETH
----------
WHEREAS, LANDLORD is the owner of a certain landsite and building, identified
in the Epigraph, hereinafter referred to as the Premises.
WHEREAS, the LANDLORD has agreed to lease to TENANT, and TENANT has agreed
to hire from LANDLORD the Premises.
NOW THEREFORE, in consideration of the foregoing premises, the parties
herein agree on this Lease subject to the following:
TERMS AND CONDITIONS
--------------------
ONE: LANDLORD hereby demises and lets unto TENANT, and TENANT hereby leases
from LANDLORD the Premises which are fully described in Schedule "A" hereto
annexed and made a part hereof.
The Premises are subject to the encumbrances, liens and/or restrictions, if
any, that may appear from said Schedule "A". Furthermore, the air rights of the
Premises, are excepted and reserved to the LANDLORD.
TWO: Premises shall be used and occupied exclusively in the manufacture of
(PRODUCT) Soft Contact Lenses and other medical products.
THREE: TENANT shall hold the Premises for a period of ten (10) years to
commence on (TERM) The date or delivery of the premises after repairs made by
Landlord or on delivery of the Premises, whichever date occurs first.
FOUR: TENANT shall pay to LANDLORD an annual rental of $1.75 per square
foot of gross building area during the first sixty (60) months of the term of
this Lease and of 2.15 per square foot of gross building area during the last
sixty (60) months. This rental shall be paid in equal monthly installments of
(RENT): $1,667.84-------------------------for the first sixty (60) months and of
(RENT): $2,049.06-------------------------for the last sixty (60) months.
The monthly installments for rent specified herein, shall be paid in advance
on the first day of each month at LANDLORD's office, or at any other place that
LANDLORD may notify. In the event that the date of commencement does not fall
on the first of the month, TENANT, further agrees to pay the first partial
monthly installment, prior to, or on the date of commencement.
FIVE: Simultaneously herewith TENANT shall deposit with LANDLORD the amount
of (DEPOSIT) $1,667.84 in Certified Check.
This deposit shall guarantee the fulfillment by TENANT of its
obligations, under this Contract, particularly, but not limited to, the payment
of rent and the return of the Premises in proper conditions at the termination
of this lease. On said termination, if TENANT is not in default of any of the
terms and conditions of this Contract, LANDLORD will return to TENANT the sum
of money, if any, held pursuant to this provision.
SIX: TENANT agrees to have on the date of commencement of the term of this
lease a Capitalization of $300,000.00
(CAPITALIZATION)
Likewise the TENANT agrees to install within six (6) months from the same date
manufacturing machinery and equipment with a value of at least $35,000.00.
(INVESTMENT IN MACHINERY AND EQUIPMENT)
This shall not include the cost of transportation and installation thereof, nor
its ordinary depreciation after installation; and within twenty four (24)
months from the date of commencement of the term, to employ a minimum of:
(EMPLOYMENT LEVEL) Seventy Five (75) Production Workers
The aforementioned levels, shall be maintained throughout the term of this
Lease or any extension thereof.
SEVEN: All notices, demands, approvals, consents and/or communications
herein required or permitted shall be in writing. If by mail should be
certified and to the following addresses, to
LANDLORD: GPO Box 2350, San Juan, Puerto Rico 00936.
To TENANT:
Jose L. Calabria, Esq. Banco Popular Center
Colorado, Martinez, Odell Penthouse Suite
Sierra & Calabria Hato Rey, P.R. 00918
(TENANT'S PHYSICAL ADDRESS OTHER THAN PREMISES):
Mr. Edward J. Hopkins 210 Crossways Park Drive
V.P. Manufacturing Woodbury, New York 11797
International Hydron
<PAGE> 2
EIGHT: Net Lease: This Lease shall be interpreted as a net lease; it
being the exclusive responsibility of TENANT to pay for all operating expenses,
utilities, maintenance, expenses, insurance, taxes or any other costs, expenses
or charges of any nature not specifically assumed by LANDLORD hereunder.
NINE: Warranty as to use: LANDLORD does hereby warrant that at the
time of the commencement of the term of this Lease, the Premises may be used by
TENANT for the manufacturing purposes herein intended which are deemed
consistent with the design and construction in accordance with the corresponding
plans and specifications.
TEN: Alterations: TENANT shall make no alterations, additions or
improvements to the Premises without the prior consent of the LANDLORD and all
such alterations, additions or improvements made by or for TENANT, shall be at
TENANT'S own cost and expense and shall, when made, by the property of the
LANDLORD without additional consideration and shall remain upon and be
surrendered with the Premises as a part thereof at the expiration or earlier
termination of this Lease, subject to any right of LANDLORD to require removal
or to remove as provided for hereinafter.
In the event TENANT asks for LANDLORD'S consent for any alteration;
LANDLORD may at its option, require from TENANT to submit plans and
specifications for said alteration. Before commencing any such work, said plans
and specifications, if required, shall be filed with and approved by all
governmental agencies having jurisdiction thereof, and the consent of any
mortgagee having any interest in or lien upon this Lease shall be procured by
TENANT and delivered to LANDLORD if required by the terms of the mortgage.
Before commencing any such work, TENANT shall at TENANT's own cost and
expense, deliver to LANDLORD a general accident and public liability policy more
particularly described in Article Thirty hereof, but said policy shall recite
and refer to such work, and in addition thereto, if the estimated cost of such
work is more than FIVE THOUSAND DOLLARS ($5,000.00), TENANT shall, at TENANT's
own cost and expense, deliver to LANDLORD a surety bond, or a performance bond
from a company acceptable to LANDLORD, or a similar bond or other security
satisfactory to LANDLORD, in an amount equal to the estimated cost of such work,
guaranteeing the completion of such work within a reasonable time, due regard
being had to conditions, free and clear of materialmen liens, mechanics liens or
any other kind of lien, encumbrances, chattel mortgages and conditional bills of
sale and in accordance with said plans and specifications submitted to and
approved by LANDLORD. At LANDLORD's option TENANT shall provide a blanket
written guarantee in an amount sufficient to satisfy LANDLORD as to all
alterations changes, additions and improvements to the Premises in lieu of a
separate guarantee for each such project.
TENANT shall pay the increased premium, if any, charged by the insurance
companies carrying insurance policies on said building, to cover the additional
risk during the course of such work.
ELEVEN: Power Substation: If required by TENANT's operations, TENANT
shall, at its own cost and expense, construct and/or install a power substation
and connect it to the PUERTO RICO ELECTRICAL POWER AUTHORITY (PREPA)
distribution lines, for voltages up to 13.2 KV; and to PREPA transmission lines
for voltage of 38 KV, all in conformity to PREPA's requirements. Such
construction shall, in no event, be undertaken by TENANT until after LANDLORD
has approved the location thereof, as well as the routing of the power line
extension.
TWELVE: Repairs and Maintenance: TENANT shall, at TENANT's own cost
and expense, put, keep and maintain in thorough repair and good order and safe
condition the building and improvements standing upon the Premises at the
commencement of the term hereof or thereafter erected upon the Premises, or
forming part of the Premises, and their full equipment and appurtenances, the
sidewalks areas, sidewalk hoists, railings, gutters, curbs and the like in from
of and adjacent to the Premises, and each and every part thereof, both inside
and outside, extraordinary and ordinary, and shall repair the whole and each and
every part thereof in order to keep the same at all times during the term hereof
in thorough repair and good order and safe conditions, whenever the necessity or
desirability therefor may occur, and whether or not the same shall occur, in
whole or in part, by wear, tear, obsolescence or defects, and shall use all
reasonable precautions to prevent, damage or injury, except as provided
hereinafter.
The LANDLORD and not the TENANT, shall be responsible for and shall
promptly correct any defects in the building on the Premises which are due to
faulty design, or to errors of construction not apparent at the time the
Premises were inspected by TENANT for purposes of occupancy by TENANT; this
shall not be interpreted to relieve TENANT of any responsibility or liability
herein otherwise provided, including among others for structural failure due to
the fault or negligence of TENANT.
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<PAGE> 3
TENANT shall also, at TENANT'S own cost and expense, maintain the
landsite in thoroughly clean condition; free from solid waste (which includes
liquid and gaseous as defined by the Resource Conservation and Recovery Act),
rubbish, garbage and other obstructions. Specifically, he shall not use said
landsite, nor permit it to be used, as a depository or as a dump for raw
materials, waste material, hazardous, toxic or non-toxic substances, or of
whichever nature. TENANT shall neither make any excavation for the purpose of
storing, putting away and/or concealing raw materials or waste material of any
kind. Underground storage of hazardous and/or toxic substances is specifically
prohibited.
TENANT shall not, or cause to be done, nor permit on the Premises
anything deemed extra hazardous, nor shall it store in the Premises flammable or
toxic products of any class or kind without taking the proper precautions and
complying with applicable laws and regulations.
In case TENANT needs to store in the landsite raw materials of a
hazardous and/or toxic nature or hazardous and/or toxic wastes, TENANT shall
notify LANDLORD and secure its prior authorization. LANDLORD shall be furnished
with a copy of any permits issues for such storage.
Although it is not intended that TENANT shall be responsible for any
decrease in value of the Premises due to the mere passing of time, or for
ordinary wear and tear of surfaces and other structural members of the building,
nevertheless TENANT shall: (i) replace, with like kind and quality, doors,
windows; electrical, sanitary and plumbing, fixtures; building equipment and/or
any other facilities or fixtures in the Premises which through TENANT'S use,
fault or negligence, become too worn out to repair during the life of this
Lease, (ii) paint the property inside and outside as required.
In addition to the foregoing, TENANT shall indemnify and save harmless
LANDLORD from and against any and all costs, expenses, claims, losses, damages,
or penalties, including counsel fees, because of or due to TENANT'S failure to
comply with the foregoing, and TENANT shall not call upon LANDLORD for any
disbursement or outlay of money whatsoever, and hereby entirely releases and
discharges LANDLORD of and from any liability or responsibility whatsoever in
connection therewith.
THIRTEEN: Roof Care: TENANT, without the prior consent of LANDLORD,
shall not: (i) erect or cause to be erected on the roof any bill board, aerial,
sign, or structure of any kind, (ii) place any fixture, equipment or any other
load over the roof, (iii) drill any hole on the roof for whichever purpose, (iv)
use the roof for storage, nor (v) correct any leaks whatsoever, this being
LANDLORD'S sole responsibility. Furthermore, TENANT shall take all reasonable
precautions to insure that the drainage facilities of the roof are not clogged
and are in good and operable conditions at all times.
FOURTEEN: Floor Loads: TENANT hereby acknowledges that it has been
informed by the LANDLORD that the maximum floor load of the Premises herein
demised is 150 pounds per sq. ft. Therefore, TENANT hereby agrees that in the
event the load of the machinery and equipment to be installed thereat exceeds
such maximum load, it shall, at its own cost and expense, carry out any
improvements to the floor of the Premises which may be necessary to support such
additional load; it being further agreed and understood that construction and/or
installation of such improvements shall not be commenced until after LANDLORD'S
approval of the plans to be prepared therefor by TENANT and thereafter, after
completion of construction and/or installation of said facilities, they shall be
deemed covered by and subject to the applicable provisions of this Contract; it
being further specifically agreed and understood that upon termination of this
Lease, such facilities shall be removed by TENANT, at its own cost and expense,
or in the alternative, and upon request by LANDLORD, they shall remain as part
of the Premises with no right whatsoever on the part of the TENANT to be
reimbursed and/or compensated therefor.
FIFTEEN: Fixtures: TENANT shall not affix to the ceiling, nor to its
supporting joists or columns, nor to any of its walls, any air conditioning
unit, nor any other fixture, without the prior consent of LANDLORD.
SIXTEEN: Environmental Protection and Compliance: TENANT agrees, as a
condition hereof, that it will not discharge its solid, liquid or gaseous
industrial and/or sanitary effluents or discharges, either into the sewer system
and/or into any other place until after required authorization therefor has been
obtained from the Puerto Rico Aqueducy and Sewer Authority, and/or the
Department of Health of Puerto Rico and/or the Environmental Quality Board,
and/or any other governmental agency having jurisdiction thereof and TENANT
further agrees and undertakes to treat any such effluent, prior to discharge
thereof as required by the said Authority, Department, and/or governmental
agency with jurisdiction, and/or to install any equipment or system required,
and to fully abide by and comply with any and all requisites imposed thereby,
and upon request by LANDLORD, to submit evidence of such compliance; it being
agreed that noncompliance thereof by TENANT for a period of ninety (90) days
after notice, shall be deemed an additional event of default under the
provisions hereof. Provided, that no construction and/or installation shall be
made until LANDLORD has approved of it.
-3-
<PAGE> 4
TENANT shall also, at TENANT'S own cost and expense, construct and
maintain Premises, processes and/or operating procedures in compliance with the
terms, conditions and commitments specified in any Environmental Impact
Statement, Environmental Assessment or any other analogous document transmitted
by the Commonwealth of Puerto Rico Economic Development Administration/LANDLORD
as lead agency or by any other governmental agency in connection with the
approval of the project.
TENANT shall also serve LANDLORD with a copy of any lawsuit, notice of
violation, order to show cause or any other regulatory or legal action against
TENANT in any environmentally-related case or issue.
TENANT shall also serve LANDLORD with a copy of any permits granted to
TENANT for air emissions, water discharge, solid waste generation, storage,
treatment and/or disposal, and for any hazardous and/or toxic waste raw
materials or by-products used or generated, stored, treated and/or disposed.
TENANT shall also serve LANDLORD with a copy of any filing or
notification to be filed by TENANT with any regulatory agency on any
environmentally related case or issue, especially in any situation involving
underground or surface water pollution, hazardous and/or toxic waste spillage
and ground contamination. The notification to LANDLORD shall take place not
later than the actual filing for the pertinent documents with the regulatory
agency.
SEVENTEEN: Improper Use: TENANT, during the term of this Lease and of
any renewal or extension thereof, agrees not to use or keep or allow the
leased Premises or any portion thereof to be used or occupied for any unlawful
purpose or in violation of this Lease or of any certificate of occupancy or
certificate of compliance covering or affecting the use of the Premises or any
portion thereof, and will not suffer any act to be done or any condition to
exist on the Premises or any portion thereof, or any article to be brought
thereon, which may be dangerous, unless safeguarded as required by law, or which
may in law, constitute a nuisance, public or private, or which may make void or
voidable any insurance then in force on the leased Premises.
EIGHTEEN: Government Regulations: TENANT agrees and undertakes to
abide by and comply with any and all rules, regulations and requisites of the
Planning Board of Puerto Rico, the Department of Health, the Environmental
Quality Board, the Environmental Protection Agency (EPA), where applicable
and/or of any other governmental agency, having jurisdiction thereon applicable
to TENANT'S operations at the Premises and/or products to be manufactured
thereat, and if requested by LANDLORD, TENANT shall submit evidence of such
compliance; it being agreed and understood that noncompliance with any and all
such rules, regulations and requisites shall be deemed an additional event of
default under the provisions of this Contract, unless remedied within thirty
(30) days after receipt of notice thereof.
Any and all improvements to the Premises required by any governmental
agency, having jurisdiction thereon so as to carry TENANT'S operations in
accordance with the regulations and requisites thereof, shall be at TENANT'S own
cost and expense, except for any improvements that may be required as a result
of any violation by LANDLORD that may exist at the effective date hereof other
than violations caused by TENANT or TENANT'S agents.
TENANT further agrees and undertakes to install in the Premises, at its
own cost and expense, such devices as may be necessary to prevent that any
hazard, which may be caused or created by its operations may affect the
environmental integrity of the landsite or may affect or cause any nuisance to
adjacent TENANTS and/or the community in general; it being agreed and understood
that creating or causing any such nuisance, shall be deemed an additional event
of default under the provisions of this Contract.
TENANT further agrees and undertakes to abide by and comply with any and
all rules, regulations and requisites of the Fire Department relative to the use
and storage of raw materials, finished products and/or inflammable materials,
and/or of any other governmental agency, having jurisdiction thereon, applicable
to TENANT'S operations at the Premises, and if requested by LANDLORD, shall
submit evidence of such compliance; it being agreed and understood that
noncompliance by TENANT with any of the aforementioned rules, regulations and
requisited shall be deemed, in each of such cases, an additional event of
default under the provisions of this Contract unless remedied within thirty (30)
days after receipt of notice thereof.
If as a consequence of the foregoing dispositions, TENANT needs to make
alterations to the Premises, the same shall be done subject to the dispositions
of Article TEN thereof.
NINETEEN: Use Permit: TENANT agrees to abide by and comply with any
and all conditions and requisites included in the Use Permit which may be issued
by the Puerto Rico Permits and Regulations Administration (ARPE), and, if
requested by LANDLORD, shall submit evidence of such compliance; it being agreed
and understood that noncompliance by TENANT with any and all such
-4-
<PAGE> 5
conditions and requisites and/or the cancellation of the said Use Permit shall,
in each of such cases, be deemed an additional event of default under the
provisions of this Contract.
TWENTY: Inspection: TENANT shall permit LANDLORD or LANDLORD'S agents
to enter the Premises at all reasonable time for the purpose of inspecting the
same, or of making repairs that TENANT has neglected or refused to make as
required by the terms, covenants and conditions of this Lease, and also for the
purpose of showing the Premises to persons wishing to purchase the same, and
during the year next preceding the expiration of this Lease, shall permit
inspection thereof by or on behalf of prospective TENANTS. If, at a reasonable
time, admission to the Premises for the purposes aforesaid cannot be obtained,
or if at any time an entry shall be deemed necessary for the inspection or
protection of the property, or for making any repairs, whether for the benefit
of TENANT or LANDLORD, LANDLORD'S agents or representatives may enter the
Premises by force, or otherwise, without rendering LANDLORD, or LANDLORD'S
agents or representatives liable to any claim or cause of action or damage by
reason thereof, and accomplish such purpose.
The provisions contained in this article are not to be construed as an
increase of LANDLORD'S obligations under this Lease; it being expressly agreed
that the right and authority hereby reserved does not impose, nor does LANDLORD
assume, by reason thereof, any responsibility or liability whatsoever for the
repair, care or supervision of the Premises, or any building, equipment or
appurtenance on the Premises.
TWENTY ONE: LANDLORD'S entry for repairs and alterations: The LANDLORD
reserves the right to make such repairs, changes, alterations, additions or
improvements in or to any portion of the building and the fixtures and equipment
which are reputed part thereof as it may deem necessary or desirable and for the
purpose of making the same, to use the street entrances, halls, stairs and
elevators of the building provided that there be no unnecessary obstruction of
TENANT'S right of entry to and peaceful enjoyment of the Premises, and TENANT
shall make no claim for rent abatement compensation or damages against LANDLORD
by reason of any inconvenience or annoyance arising therefrom.
TWENTY TWO: LANDLORD excused in certain instances: If, by reason of
inability to obtain and utilize labor, materials or supplies, or by reason of
circumstances directly or indirectly the result of any state of war, or of
emergency duly proclaimed by the corresponding governmental authority, or by
reason of any laws, rules, orders, regulations or requirements of any
governmental authority now or hereafter in force or by reason of strikes or
riots, or by reason of accidents, in damage to or the making of repairs,
replacements or improvements to the building or any of the equipment thereof, or
by reason of any other cause reasonable beyond the control of LANDLORD, LANDLORD
shall be unable to perform or shall be delayed in the performance of any
covenant to supply any service, such non-performance or delay in performance
shall not be ground to any claim against LANDLORD for damages or constitute a
total or partial eviction, constructive or otherwise. It being agreed and
understood that the time for completion of any such construction, shall be
extended for a period of time equal to the number of days of any such delay.
TWENTY THREE: Quiet Enjoyment: TENANT on paying the full rent and
keeping and performing the conditions and covenants herein contained, shall and
may peaceably and quietly enjoy the Premises for the term aforesaid, subject,
however, to the terms of this Lease and to the mortgages hereinafter mentioned.
TWENTY FOUR: Leasehold Improvements: If leasehold improvements made by
or for the benefit of TENANT in the Premises at his request or other personal
property to TENANT are assessable or taxable and a tax liability is imposed to
TENANT or LANDLORD, it is understood that it shall be the sole responsibility of
TENANT to pay such taxes and in no event shall such taxes be the liability of or
be transferable to LANDLORD. In the event that by operation of law, such taxes
became a liability of LANDLORD, TENANT shall pay such taxes as they become due
and payable and shall promptly reimburse LANDLORD for any payments or expenses
incurred or disbursed by LANDLORD by reasons of any such assessment. Said amount
shall be due and payable, as additional rent, with the next installment of rent.
In the event that TENANT fails to make this payment when due, it shall be
subject to the dispositions of Article THIRTY SEVEN hereof.
TWENTY FIVE: Stoppage of Operations: It is understood by the parties
hereto that this Lease is made by LANDLORD in furtherance of the
industrialization plans of the Commonwealth of Puerto Rico, and it is
accordingly understood that TENANT will use all reasonable efforts while this
Lease is in effect to maintain a manufacturing operation upon the Premises, but
nothing contained in this paragraph shall be deemed to require TENANT to
maintain such an operation otherwise than in accordance with sound principles of
business management, or (without limiting the generality of the foregoing) to
prevent TENANT from curtailing such operation or from shutting it down, whenever
and as often as TENANT may, in the exercise of sound business judgment,
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deem such action advisable. However, TENANT shall give to LANDLORD notice of any
necessary or convenient curtailment and/or shut-down, at least seven (7) days
prior to the date fixed therefor except in cases of an emergency shut-down, in
which case such notice shall be given at the earliest possible time. No
curtailment of operations or shut-down in accordance with the provisions of this
paragraph shall constitute a default under the provisions of this Contract which
will enable LANDLORD to terminate it, unless such plants shall have been
shut-down for a period of six (6) consecutive months. A shut-down on account of
unforeseeable event or events which although foreseeable could not be prevented,
shall not constitute a breach of this agreement. Nothing in this paragraph
contained shall relieve the TENANT from the payment of rent during the period of
any shut-down or curtailments of operations.
TWENTY SIX: Assignment and Subletting: TENANT shall not assign, this
Lease nor let or sublet the Premises or any part thereof except to its parent
company, to a wholly owned subsidiary, to an affiliate of TENANT, wholly owned
by TENANT'S parent company or to a corporation to be organized by TENANT. In any
of these cases, TENANT shall promptly notify LANDLORD of said assignment or
subletting, it being agreed and understood that no such assignment or subletting
shall: (i) reduce or, in any way, affect the obligations of TENANT under this
Lease, nor (ii) release TENANT from liability under this Lease.
TWENTY SEVEN: Successors in Interest. This Lease Contract and every
provision thereof, shall bind and inure to the benefit of the legal
representatives, successors and assigns of the parties. However, the term
"LANDLORD", as used in this Contract, so far as any covenants or obligations on
the part of LANDLORD under this Lease are concerned, shall be limited to mean
and include only the owner or lessor, at the time in question, of the Premises,
so that in the event hereafter of a transfer of the title to the Premises,
whether any such transfer be voluntary or by operation of law or otherwise, the
person, natural or juridical, by whom any such transfer is made, shall be and
hereby is entirely freed and relieved of all personal liability as respects the
performance of the covenants and obligations of LANDLORD under this Lease from
and after the date of such transfer.
TWENTY EIGHT: No Representation by LANDLORD: LANDLORD, LANDLORD'S
agents or employees, or the agents, executives or employees of the Economic
Development Administration, have made no representations or promises with
respect to the Premises except as herein expressly set forth and no rights,
easements or licenses are acquired by TENANT by implication or otherwise except
as expressly set forth in the provisions of this Contract. The taking possession
of the Premises by TENANT, shall be conclusive evidence, as against TENANT, that
TENANT accepts same "as is" and that said Premises, particularly the building
which forms a part of the same, were in good and satisfactory conditions at the
time such possession was so taken.
TWENTY NINE: Damages: LANDLORD shall not be responsible for any latent
defect or change of conditions in the Premises resulting in damage to the same,
or the property or person therein, except to the extent of LANDLORD'S gross
negligence, and provided such claims or loss is not covered by insurances herein
required from TENANT. TENANT shall promptly notify LANDLORD of any damage to or
defects in the Premises, particularly in any part of the building's sanitary,
electrical, air conditioning or other systems located in or passing through the
Premises, and the damage or defective conditions, subject to the provisions of
Article TWENTY ONE hereof, shall be remedied by LANDLORD with reasonable
diligence.
THIRTY: General Liability Insurance: TENANT shall indemnify, save
harmless and defend LANDLORD and agents, servants and employees of LANDLORD
against and from any and all liability, fines, suits, claims, demands, expenses,
including attorneys' fees, and actions of any kind or nature arising by reason
of injury to person or property including the loss of use resulting thereof or,
violation of law occurring in the Premises occasioned in whole or in part by any
negligent act or omission on the part of TENANT or an employee (whether or not
action within the scope of his employment), servant, agent, licensee, visitor,
assignor or undertenant of TENANT, or by any neglectful use or occupancy of the
Premises or any breach, violation or non-performance of any covenant in this
Lease on the part of TENANT to be observed or performed.
Pursuant to the foregoing, TENANT shall, maintain during the term of
this Lease, at its own cost and expense, a comprehensive General Liability
Policy. Said policy shall: (i) be for a combined single limit of no less than
$500,000.00 per accident, (ii) hold LANDLORD harmless against any and all
liability as hereinbefore stated, and (iii) the care, custody & control
exclusion shall be deleted from this coverage. LANDLORD may require additional
reasonable limits of public liability insurance and coverages, when changing
circumstances so require.
THIRTY ONE: Property Insurance: TENANT recognizes that the rent
provided for herein does not include any element to indemnify, repair, replace
or make hold TENANT, his employees, servants, agents, licensees, visitors,
assignees, or undertenant for any loss or damage to any property or injury to
any person in the Premises.
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Accordingly, during the term of this Lease, TENANT shall keep the
building standing upon the Premises at the commencement of the term hereof or
thereafter erected upon the Premises, including all equipment appurtenant to
the Premises and all alterations, changes, additions and improvements, insured
for the benefit of LANDLORD and TENANT, as their respective interest may
appear, in an amount at least equal to the percentages stated below (as
LANDLORD may from time to time determine). The basis of the Property Insurance
shall be Replacement Cost and the coverage an "All Risks" Property Insurance
Policy. Coverages included in the All Risks Form:
1. Fire - "Building & Contents Form"
(a) Building - 100% of insurable value exclusive of foundations
(b) Contents - All equipment appurtenant to the Premises (State
value on Policy)
2. Additional Coverages under the Fire Policy
(a) Extended Coverage Endorsement - 100% of insurable value
exclusive of foundations
(b) Earthquake - 50% of insurable value including foundations
(c) Vandalism and Malicious Mischief Endorsement
(d) Improvements and Betterments - For all alteration, changes,
additions and improvements
3. Landslide and Flood whenever applicable and/or necessary
4. Boiler and Machinery (if any) - 100% of insurable value
5. Pollution Liability Policy - if necessary
THIRTY TWO: Multifactory Building Specific Dispositions: In the event
that the Premises constitute a section or sections of an industrial building
and landsite in which other operations are conducted by other TENANTS: (i) the
insurance coverage herein required, shall be acquired by LANDLORD for the whole
of the industrial building and TENANT shall reimburse LANDLORD, for its
proportionate share in the total cost of said policies, (ii) if, because of
anything done, caused or permitted to be done, permitted or omitted by TENANT,
the premium rate for any kind of insurance affecting the Premises shall be
increased, TENANT shall pay to LANDLORD the additional amount which LANDLORD
may be thereby obligated to pay for such insurance, and if LANDLORD shall
demand that TENANT remedy the condition which cause the increase in the
insurance premiums rate, TENANT will remedy such condition within five (5)
days after such demand, and (iii) the insurance policies required in the
preceding Articles 30 - & - 31 shall be endorsed to include a waiver of
subrogation against TENANT. All amounts to be reimbursed by TENANT under this
Article, shall be due and payable, as additional rent, with the next
installment of rent. In the event that TENANT fails to make this payment, when
due, it shall be subject to the dispositions of Article THIRTY SEVEN hereof.
THIRTY THREE: Additional Dispositions about Insurance: All the insurance
policies herein required from TENANT, shall be taken in form and substance
acceptable to LANDLORD with Insurance Companies duly authorized to do business
in Puerto Rico, having an "A" and a higher financial rating according to Best's
Insurance Report; and shall include LANDLORD as additional insured. TENANT
shall instruct the corresponding insurer to deliver such policies or certified
copies or Certificates of Insurance, in lieu of, directly to LANDLORD. LANDLORD
reserves the right not to deliver possession of the Premises to TENANT, unless,
and until two (2) days after such original policies, or certified copies or
certificates have been deposited with LANDLORD.
Furthermore, said policies, shall: (i) provide that they may not be
cancelled by the insurer for nonpayment of premium or otherwise, until at least
thirty (30) days after service of notice by registered or certified mail of the
proposed cancellation upon LANDLORD, and (ii) be promptly renewed by TENANT
upon expiration and TENANT shall, within thirty (30) days after such renewal,
deliver to LANDLORD adequate evidence of the payment of premiums thereon. If
such premiums or any of them shall not be so paid, LANDLORD may procure the
same in the manner set forth for governmental agencies, and TENANT shall
reimburse LANDLORD any amount so paid. This reimbursement being due and payable
with the next installment of rent. In the event that TENANT fails to make this
payment when due, it shall be subject to the dispositions of Article THIRTY
SEVEN hereof. It is expressly agreed and understood, that payment by LANDLORD
of any such premiums shall not be deemed to waive or release the default in
the payment thereof by TENANT nor the right of LANDLORD to take such action as
may be available hereunder as in the case of default in the payment of rent.
Upon the commencement of the term hereof, TENANT shall pay to LANDLORD
the apportioned unearned premiums on all such policies of insurance then carried
by LANDLORD in respect of the Premises in the event TENANT continues with the
insurance policies placed by LANDLORD.
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<PAGE> 8
TENANT shall not violate nor permit to be violated any of the conditions
or provisions of any of said policies, and TENANT shall so perform and satisfy
the requirements of the companies writing such policies that at all times
companies of good standing and acceptable to LANDLORD shall be willing to write
and continue such insurance.
TENANT shall cooperate with LANDLORD in connection with the collection
of any insurance monies that may be due in the event of loss and shall execute
and deliver to LANDLORD such proofs of loss and other instruments that may be
required for the purpose of facilitating the recovery of any such insurance
monies, and in the event that TENANT shall fail or neglect so to cooperate or to
execute, acknowledge and deliver any such instrument, LANDLORD, in addition to
any other remedies, may as the agent or attorney-in fact of TENANT, execute and
deliver any proof of loss or any other instruments as may seem desirable to
LANDLORD and any mortgagee for the collection of such insurance monies. This
shall not be interpreted as any waiver of the obligations of TENANT under
Articles THIRTY, THIRTY ONE, THIRTY TWO and THIRTY THREE hereof or exclusively
in favor of LANDLORD under Article THIRTY NINE hereof.
THIRTY FOUR: Waivers: The receipt by the LANDLORD of the rent,
additional rent, or any other sum or charges payable by TENANT with or without
knowledge of the breach of any covenant of this Contract, shall not be deemed a
waiver of such breach. No act or omission of LANDLORD or its agent during the
term of this Lease shall be deemed an acceptance of a surrender of the Premises
and no agreement to accept a surrender of the Premises shall be valid unless it
be made in writing and subscribed by LANDLORD. This Contract contains all the
agreements and conditions made between the parties hereto with respect to the
Premises and it cannot be changed orally. Any additions to, or changes in this
Lease must be in writing, signed by the party to be charged.
Failure on the part of LANDLORD to act or complain of any action or
nonaction on the part of the TENANT shall not be deemed to be a waiver of any of
its respective rights hereunder nor constitute a waiver at any subsequent time
of the same provision. The consent or approval by LANDLORD to, or of any action
by the other requiring consent or approval, shall not be deemed to waive or
render unnecessary the consent or approval by LANDLORD of any subsequent similar
act.
THIRTY FIVE: Reinstatement: No receipt of monies by LANDLORD for
TENANT after the termination or cancellation hereof in any lawful manner shall
reinstate, continue or extend the term hereof, or affect any notice theretofore
given to TENANT, or operate as a waiver of the right of LANDLORD to enforce the
payment of rent, additional rent, or other charges then due or thereafter
falling due, or operate as a waiver of the right of LANDLORD to recover
possession of the Premises by proper suit, action, proceeding or remedy; it
being agreed that, after the service of notice to terminate or cancel this
Lease, and the expiration of the time therein specified, if the default has not
been cured in the meantime, or after the commencement of suit, action or summary
proceedings or of any other remedy, or after a final order, warrant or judgment
of the possession of the Premises, LANDLORD may demand, receive and collect any
monies then due, or thereafter becoming due, without in any manner affecting
such notice, proceeding, suit, action, order, warrant or judgment; and any and
all such monies so collected shall be deemed to be payments for the use and
occupation of the Premises, or at the election of LANDLORD, on account of
TENANT'S liability hereunder. Delivery or acceptance of the keys to the
Premises, or any similar act, by the LANDLORD, or its agents or employees,
during the term hereof, shall not be deemed to be a delivery or an acceptance of
a surrender of the Premises unless LANDLORD shall explicitly consent to it, in
the manner set forth hereinbefore.
THIRTY-SIX: Subordination and Attornment: This Lease is and shall be
subject and subordinate to all lines, or mortgages which may now or hereafter
affect the Premises and to all renewals, modifications, consolidations,
replacements and extensions thereof and, although this subordination provisions
shall be deemed for all purposes to be automatic and effective without any
further instrument on the part of TENANT, TENANT shall execute any further
instrument requested by the LANDLORD to confirm such subordination.
TENANT further covenants and agrees that if by reason of a default upon
the part of the LANDLORD of any mortgage affecting the Premises, the mortgage is
terminated or foreclosed by summary proceedings or otherwise, TENANT will attorn
to the mortgagee or the purchaser in foreclosure proceedings, as the case may
be, and will recognize such mortgagee or purchaser,
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<PAGE> 9
as the TENANT'S landlord under this Lease. TENANT agrees to execute and deliver,
at any time and from time to time, upon the request of LANDLORD or of the
mortgagee or the purchaser in foreclosure proceedings, as the case may be, any
reasonable instrument which may be necessary or appropriate to evidence such
attornment. TENANT further waives the provision of any statute or rule of law
now or hereafter in effect which may give or purport to give TENANT any right of
election to terminate this lease or to surrender possession of the Premises
demised hereby in the event any such proceeding is brought by the holder of any
such mortgage, and TENANT'S obligations hereunder shall not be affected in any
way whatsoever by any such proceeding.
TENANT, covenants and agrees, upon demand of the holder of any mortgage
duly recorded or recordable in the corresponding Registry of the Property or of
any receiver duly appointed by the corresponding court having or claiming
jurisdiction over the property, in proceedings to foreclose any such mortgage,
to pay to the holder of any such mortgage or to such receiver, as the case may
be, all rent becoming due under this Lease after such demand, provided such
holder of any such mortgage or any such receiver complies with the obligations
of LANDLORD under this Lease.
TENANT, upon request of LANDLORD or any holder of any mortgage or lien
affecting the Premises, shall from time to time, deliver or cause to be
delivered to LANDLORD or such lien holder or mortgagee, within ten (10) working
days from date of demand a certificate duly executed and acknowledged in form
for recording, without charges, certifying, if true, or to the extent true, that
this Lease is valid and subsisting and in full force and effect and LANDLORD is
not in default under any of the terms of this Lease.
THIRTY SEVEN: Late Payments and Payment by LANDLORD: In the event that:
(i) TENANT makes late payment, or fails to make payment to LANDLORD, in whole or
in part, of the rent, or of the additional rent, or of any of the other payments
of money required to be paid by TENANT to LANDLORD, as stipulated in this
Lease, when and as due and payable; or if (ii) LANDLORD, without assuming any
obligation to do so, after any notice or grace period provided hereunder,
performs or causes to be performed, at the cost and expense of TENANT, any of
the acts or obligations agreed to be performed by TENANT, as stipulated in the
Lease, and TENANT fails to refund LANDLORD any amounts of money paid or incurred
by LANDLORD in performing of causing the performance of such acts or
obligations, when and as due and payable, TENANT undertakes and agrees to pay
LANDLORD as additional rent, interest on such lately paid or unpaid rents,
additional rent, and/or such other payments of money required to be paid, and/or
on any such amounts of money required to be refunded, from and after the date
when payment thereof matured or became due and payable, until full payment, at
the rate of twelve per cent (12%) per annum, or if such 12% interest, is
unlawful, then and in such event, at the highest maximum prevailing rate of
interest on commercial unsecured loans as fixed by the Board of Regulatory Rates
of Interest and Finance Charges, created under Law #1, approved October 15, 1973
(10 LPRA 993), as amended, or by any successor statute or regulation thereof.
THIRTY EIGHT: Abatement: If any substantial service or facility to be
provided by LANDLORD is unavailable for a period exceeding thirty (30) days and
LANDLORD has been notified of the same, should time unavailability of such
service render all or any portion of the Premises untenable, TENANT after the
aforesaid thirty (30) days, shall be entitled to an abatement of a portion of
the rent that shall reflect that portion of the Premises which is untenable,
provided the damage to the service or facility is not attributable to the act or
neglect of TENANT or the employees, servants, licensees, visitors, assigns or
undertenants of TENANT.
THIRTY NINE: Fire or other Casualty: If before or during the term of
this Lease, the Premises shall be damaged by fire or other casualty, LANDLORD
after written notice thereof is given by TENANT, shall repair the same with
reasonable dispatch after notice to it of the damage, due allowances being made
for any delay due to causes beyond the LANDLORD'S reasonable control, provided,
however, that the LANDLORD shall not be required to repair or replace any
furniture, furnishings or other personal property which TENANT may have placed
or installed or which it may be entitled or required to remove from the
Premises. LANDLORD shall proceed with due diligence to obtain the corresponding
insurance adjustment of the loss and TENANT shall fully cooperate with LANDLORD
and assists in the adjustment of the loss. Until such repairs are completed, and
provided such damage or other casualty is not attributable to the act or neglect
of TENANT or the employees, servants, licensees, visitors, assigns or
undertenants of TENANT, the rent required to be paid pursuant to Article FOUR
hereof, shall be abated in proportion to the part of the Premises which are
untenable. If the building be so damaged that LANDLORD shall decide to demolish
and/or to reconstruct the building, in whole
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or in part, LANDLORD may terminate this Lease by notifying TENANT within a
reasonable time after such damage of LANDLORD'S election to terminate this
Lease, such termination to be effective immediately if the term shall not have
commenced or on a date to be specified in such notice if given during the term.
In the event of the giving of such notice during the term of this Lease, the
rent shall be apportioned and paid up to the time of such fire or other casualty
if the Premises are damaged, or up to the specified date of termination if the
Premises are not damaged and LANDLORD shall not be otherwise liable to TENANT
for the value of the unexpired term of this Lease.
FORTY: Default Provisions: If, during the term of this Lease, TENANT
shall: (i) apply for or consent in writing to, the appointment of a receiver,
trustee or liquidator of TENANT or of all or substantially all of its assets or
(ii) seek relief under the Bankruptcy Act, or admit in writing its inability to
pay its debts as they become due, or (iii) make a general assignment for the
benefit of his creditors, or (iv) file a petition, case or an answer seeking
relief (other than a reorganization not involving the liabilities of TENANT) or
arrangement with creditors, or take advantage of any insolvency law, or (v) file
an answer admitting the material allegations of a case file against it in any
bankruptcy, reorganizations or insolvency proceeding or, if an order, judgment
or decree shall be entered by any court of competent jurisdiction on the
application of TENANT or creditor adjudicating TENANT a bankrupt or insolvent,
or approving a petition seeking reorganization of TENANT (other than a
reorganization not involving the liabilities of TENANT) or appointment of a
receiver; trustee or liquidator of TENANT, or of all or substantially all of its
assets, and such order, judgment or decree, shall continue unstayed and in
effect for any period of sixty consecutive days, the term of this Lease and all
right, title and interest of TENANT hereunder shall expire as fully and
completely as if that day were the date herein specifically fixed for the
expiration of the term, and TENANT will then, quit and surrender the Premises to
LANDLORD, but TENANT shall remain liable as hereinafter provided.
If, during the term of this Lease: (i) TENANT shall default in
fulfilling any of the covenants of this Lease (other than the covenants for the
payment of rent or additional rent), or of any other standing contract with
LANDLORD or (ii) if, during the term of this Lease TENANT shall abandon, vacate
or remove from the Premises the major portion of the goods, wares, equipment, or
furnishings usually kept on said premises, or (iii) this Lease, without the
prior consent of LANDLORD, shall be encumbered, assigned or transferred in any
manner in whole or in part or shall, by operation of law, pass to or devolve
upon any third party, except as herein provided, or (iv) if TENANT is in
violation of laws, rules and regulations regarding minimum wages of its
employees, or of any other law, rules and regulations applicable to his
operations, but which have not been specifically mentioned in this Lease,
LANDLORD may give to TENANT notice of any such default or the happening of any
event referred to above and if at the expiration of thirty days after the
service of such a notice the default or event upon which said notice was based
shall continue to exist, or in the case of a default which cannot with due
diligence be cured within a period of thirty days, if TENANT fails to proceed
promptly after the service of such notice and with all due diligence to cure the
same and thereafter to prosecute the curing of such default with all due
diligence (it being intended that in connection with a default not susceptible
of being cured with due diligence within thirty days that the time of TENANT
within which to cure the same shall be extended for such period as may be
necessary to complete the same with all due diligence), LANDLORD may give to
TENANT a notice of expiration of the term of this Lease as of the date of the
service of such second notice, and upon the giving of said notice of expiration
the term of this Lease and all right, title and interest of TENANT hereunder
shall expire as full and completely as if that day were the date herein
specifically fixed for the expiration of the term, and TENANT or any party
holding under him will then quit and surrender the Premises to LANDLORD, but
TENANT shall remain liable as hereinafter provided.
If, (i) TENANT shall default in the payment of the rent, the additional
rent, or of any other payment as required under this Lease and such default
shall continue for ten working days after notice thereof by LANDLORD, of (ii) if
the default of the payment of the rent, continues for thirty days from the date
any such payments become due and payable (AUTOMATIC DEFAULT TERMINATION), or
(iii) if this Lease shall terminate as in paragraph One and Two of this Article
provides, this Lease shall terminate and TENANT will then quit and surrender the
Premises to LANDLORD, but TENANT shall remain liable as hereinafter provided,
LANDLORD or LANDLORD'S agents and servants may immediately or at any time
thereafter re-enter the Premises and remove all persons and all or any property
therefrom, whether by summary dispossess proceedings or by any suitable action
or proceeding at law, or with the license and permission of
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<PAGE> 11
TENANT, which shall under this Contract be deemed given upon expiration of the
strict thirty (30) days notice period of subdivision or paragraph Two of this
Article, without LANDLORD being liable to indictment, prosecution or damages
therefor and repossess and enjoy the Premises with all additions, alterations
and improvements.
If TENANT shall fail to take possession of the Premises within ten (10)
days after the commencement of the term of this Lease, or if TENANT shall vacate
and abandon the Premises, LANDLORD shall have the right, at LANDLORD'S option,
to terminate this Lease and the term hereof, as well as all the right, title and
interest of TENANT hereunder, by giving TENANT five (5) days notice in writing
of such intention, and upon the expiration of the time fixed in such latter
notice, if such default be not cured prior thereto, this Lease and the term
hereof, as well as all the right, title and interest of TENANT hereunder, shall
wholly cease and expire in the same manner and with the same force and effect
(except as to TENANT'S liability) as if the date fixed by such latter notice
were the expiration of the term herein originally granted; and TENANT shall
immediately quit and surrender to LANDLORD the Premises and each and every part
thereof and LANDLORD may enter into or repossess the Premises, either by force,
summary proceedings or otherwise. The right granted to LANDLORD in this Article
or any other Article of this Lease to terminate this Lease, shall apply to any
extension or renewal of the term hereby granted, and the exercise of any such
right by LANDLORD during the term hereby granted shall terminate any extension
or renewal of the term hereby granted and any right on the part of TENANT
thereto.
Upon the termination of this Lease by reason of any of the foregoing
events, or in the event of the termination of this Lease by summary dispossess
proceedings or under any provisions of law, now or at any time hereafter, in
force by reason of, or based upon, or arising out of a default under or breach
of this Lease on the part of TENANT, or upon LANDLORD recovering possession of
the Premises in the manner or in any of the circumstances hereinbefore
mentioned, or in any other manner or circumstances whatsoever, whether with or
without legal proceedings, by reason of, or based upon, or arising out of a
default under or breach of this Lease on the part of TENANT, LANDLORD, at its
option, but without assuming any obligation to do so in any case, may at any
time, and from time to time, relet the Premises or any part or parts thereof the
account of TENANT or otherwise on such terms as LANDLORD may elect, including
the granting of concessions, and receive and collect the rents therefor,
applying the same at a rental not higher than the one stipulated in this
Contract, first to the payment of such reasonable expenses as LANDLORD may have
incurred in recovering possession of the Premises, including reasonable legal
expenses, and for putting the same into good order or condition or preparing or
altering the same for re-rental, and expenses, commissions and charges paid,
assumed, or incurred by LANDLORD in and about the reletting of the Premises or
any portion thereof and then to the fulfillment of the covenants of TENANT
hereunder. Any such reletting herein provided for, may be for the remainder of
the term of this Lease or for a longer or shorter period or at a higher or lower
rental. In any such case, whether or not, the Premises or any part thereof be
relet, TENANT shall pay to LANDLORD the rent required to be paid by TENANT up to
the time of such termination of this Lease, and/or the full rent provided for in
the agrement for any holdover of such period after termination and up to the
surrender or recovery of possession of the Premises by LANDLORD, as the case may
be, and thereafter TENANT covenants and agrees, to pay to LANDLORD until the end
of the term of this Lease as originally demised the equivalent of any deficiency
amount of all the rent reserved herein, less the net avails of reletting, if
any, as specified hereinabove in this Article and the same shall be due and
payable by TENANT to LANDLORD as provided herein, that is to say, TENANT shall
pay to LANDLORD the amount of any deficiency then existing.
FORTY ONE: LANDLORD'S Remedies: In the event TENANT shall default in
the performance of any of the terms, covenants or provisions herein contained,
LANDLORD may, but without the obligation to do so, perform the same for the
account of TENANT and any amount paid or expense incurred by LANDLORD in the
performance of the same shall be repaid by TENANT on demand. In the event of a
breach or threatened breach by TENANT or any subtenant or other person holding
or claiming under TENANT of any of the covenants, conditions or provisions
hereof, LANDLORD shall have the right of injunction to restrain the same, and
the right to invoke any remedy allowed by law or in equity as if specific
remedies, indemnity or reimbursement were not herein provided for. The rights
and remedies given to LANDLORD in this Lease are distinct, separate and
cumulative, and no one of them, whether or not exercised by LANDLORD, shall be
deemed to be a waiver, or an exclusion, of any of the others.
-11-
<PAGE> 12
FORTY TWO: Notice of Default: Anything in this Lease to the contrary
notwithstanding, it is specifically agreed that there shall be no enforceable
default against LANDLORD under any provisions of this Lease, unless notice of
such default be given by TENANT to LANDLORD in which TENANT shall specify the
default or omission complained of, and LANDLORD shall have thirty (30) days
after receipt of such notice in which to remedy such default, or if said default
or omission shall be of such a nature that the same cannot be cured within said
period, then the same shall not be an enforceable default if LANDLORD shall have
commenced taking the necessary steps to cure or remedy said default within said
thirty (30) days and diligently proceeds with the correction thereof.
FORTY THREE: Definition of Capitalization: For the purpose of this
Contract, specifically of Clause No. SIX, Capitalization means the total of
owner's equity sources (preferred stock, common stock and surplus accounts) and
long-term debts, it being agreed and understood that the amortization of any
such debt shall in no way diminish the amount originally determined as
Capitalization.
FORTY FOUR: Disclosure of Information. TENANT agrees to furnish to
LANDLORD within ninety (90) days after the expiration of each fiscal year of
TENANT, an annual statement certified by an independent Certified Public
Accountant showing as of the end of each such fiscal year: (i) TENANT'S paid-in
capital, (ii) long-term debts and capitalization as required by Articles SIX and
FORTY THREE hereof, (iii) investment in machinery and its capacity to provide
employment, (iv) taxes (including Social Security taxes) paid, and (v) any other
information as required by this Lease.
In the event such statement is not filed with LANDLORD as herein
provided, LANDLORD may obtain such information from TENANT at TENANT'S expense,
and for such purpose TENANT shall make available to LANDLORD'S designated
representatives its books of accounts and other necessary data and facilities,
all of which shall be provided and made available at TENANT'S principal office
in Puerto Rico.
FORTY FIVE: Automatic Renewal: In the event TENANT does not vacate the
Premises in the manner and under the conditions hereinbefore provided, within
ninety (90) days after the normal expiration of the term hereof, LANDLORD shall
have the option to be exercised at any time thereafter, to notify TENANT that
the lease herein has been renewed for an additional term of ten (10) years from
the date of the last normal expiration of the term hereof and, in such event,
the parties agree that this Contract shall be held to have been renewed and to
continue in full force and effect for such additional term of ten (10) years
upon the mere mailing of such notice by LANDLORD to TENANT. This provision shall
in no way prejudice, affect or deny any right which LANDLORD may otherwise have
because, or at the time, of any such termination of the term hereof,
particularly whenever the LANDLORD does not exercise such option; it being
agreed and understood that such renewal shall be upon the same terms and
conditions contained herein except that the rental rate to be charged shall be
the rate then currently being charged by LANDLORD for similar buildings in the
area, but in no event shall it be less than the rate herein stipulated.
FORTY SIX: Partial Invalidity and Applicable Law: If any term or
provision of this Lease or the application thereof to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder of this Lease
and the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
be enforceable to the fullest extent permitted by law. This Contract is entered
into and shall be interpreted in accordance with the laws of the Commonwealth of
Puerto Rico.
FORTY SEVEN: Lease Termination and Holding Over: Upon the expiration
or termination of this Lease: (i) TENANT shall furnish LANDLORD with a full and
detailed report as to the environmental integrity of the landsite and Premises
with specific reference to each and every environmental area of concern
including, but not limited to, air emissions, effluent discharge, state of
underground and surface waters, solid waste and hazardous and/or toxic wastes
generation, storage, transportation, treatment and/or disposal, and any
hazardous and/or toxic raw materials or by-products used or generated, stored,
transported, treated and/or disposed of during the period of operation, state of
the landsite, disclosure of any environmental regulatory violations, compliance
plans, permits or any other regulatory procedures related to the operation. The
report shall be accompanied by a Certification from TENANT as to the
environmental state of the premises and landsite. In case there should be any
damage or any remedial action to be performed or any other obligation to be
fulfilled by TENANT, the
-12-
<PAGE> 13
Certification shall state so and present a plan of action with the appropriate
financial provisions to execute it. LANDLORD shall hold TENANT responsible for
any and all environmental damage, or any damage to third parties as a result of
any environmental damage, or any remedial action (including monitoring) to be
performed at landsite or otherwise as a result of TENANT'S operations after
termination of Lease and until such a time as complete remediation or
fulfillment of TENANT'S obligations is effected. In case TENANT fails to comply
with the foregoing provisions, LANDLORD may elect to effect them at TENANT'S
expense and responsibility.
(ii) TENANT shall remove all property of TENANT and that of any third
party and failing so to do, TENANT hereby appoints LANDLORD its agent so that
LANDLORD may cause all of the said property to be removed at the expense and
risk of TENANT. TENANT covenants and agrees to give full and timely observance
and compliance to this covenant to remove all his property and surrender the
Premises broom clear. TENANT hereby agrees to pay all reasonable necessary cost
and expenses thereby incurred by LANDLORD. If, as the sole result of the removal
of TENANT'S property any portion of the Premises or of the building of which
they are a part, are damaged, TENANT shall pay to LANDLORD the reasonable cost
of repairing such damages unless due to the gross negligence of LANDLORD, its
agents, servants, employees and contractors. TENANT'S obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of this Lease.
FORTY EIGHT: Change of Address: TENANT shall promptly notify LANDLORD
of any change in the address other than the Premises that is required from him
in Article SEVEN hereof.
FORTY NINE: Additional Covenant(s): This Lease contains seven (7)
additional Articles numbered Fifty (50) to Fifty Six (56), which are annexed
hereto as Schedule "B", if any, and made part hereof.
IN WITNESS WHEREOF, LANDLORD and TENANT have respectively signed upon
proper authority this Lease, this 14th day of September, 1984.
PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY
G.P.O. BOX 2350
San Juan, Puerto Rico 00936
(LANDLORD)
BY: [SIG]
--------------------------------------
HYDRON PUERTO RICO INC.
BY: [SIG] 9/12/84
--------------------------------------
-13-
<PAGE> 14
HYDRON PUERTO RICO INC. SCHEDULE A
Description of parcel of land Lot No. 10
Located at Santa Isabel Industrial Area
San Isabel, Puerto Rico
Site for Project No. T-1315-0-80
Parcel of land, Lot No. 10, located at Santa Isabel Industrial Area, Santa
Isabel, Puerto Rico
It bounds, by the NORTH, with Street A of the same industrial area; by the
SOUTH, with land owned by Luce & Company; by the EAST, with Lot No. 11 of the
same industrial area; and by the WEST, with Lot No. 8 of the same industrial
area.
It has a surface area of 6,000.00 sq. meters, equivalent to 1.5266 cuerdas.
<PAGE> 15
HYDRON PUERTO RICO INC. SCHEDULE A
Page 2
PROJECT NO. T-1315-0-80:
- ------------------------
This is a pitched roof type building consisting of reinforced concrete
foundations, steel columns and steel girders supporting 30 feet long steel
joists which in turn support #22 gauge galvanized steel deck covered by 1"
fiberglass insulation and a 3 ply built-up roofing.
This building has no monitor but 2 roof ventilators are provided.
The structure consists of a main floor 120'-8'x90' out to out dimensions
with an area of 10,920.64 sq. ft. of manufacturing space; one lean-to 30'-6" x
12'-6 for an area of 381.25 sq. ft. for sanitary facilities, and an entrance
porch 16'-2x8'-4 for an area of $134.70 sq. ft. This gives a total area of
11,436.59 sq. ft. of covered floor space.
The floor slab is designed for a load capacity of 150 pounds per square
foot and consists of a 4" thick reinforced concrete slab with a monolithic
cement finish except at ladies' and men's rooms which have ceramic tiles.
Interior walls at lean-to are plastered and painted together with a
6'-1" high sprayed-on glazed finish wainscot.
Exterior walls are of concrete block plastered and painted on both
sides.
Ceiling is painted throughout the building.
Windows are of aluminum miami type. Interior doors are made of hollow
flush plywood type and exteriors are industrial type metal ones. Has one 10' x
10' metal rolling doors at loading area.
Clearance in the manufacturing area from finished floor to lowest part
of frame beams at the side eaves is 12'-2 1/2".
Encumbrances:
It is affected by the following rights of ways:
1. 25.0 ft. wide in favor of PREPA running along its Southern boundary.
2. 5.0 feet wide in favor of PREPA running along its Eastern boundary.
<PAGE> 16
HYDRON PUERTO RICO, INC. SCHEDULE "B"
FIFTY: Tenant hereby acknowledges that the building herein demised is
in need of certain repairs which Landlord undertakes to commence presently after
execution hereof; therefore, the term of the lease hereunder shall, anything to
the contrary notwithstanding, commence on the date of delivery of the premises
to Tenant.
FIFTY ONE: Anything contained in this Contract to the Contrary
notwithstanding, if required by Tenant, it shall be for Tenant's own cost and
expense the construction and/or installation of a sprinkler system; it being
agreed and understood that such construction shall be in accordance with the
provisions of this Contract.
FIFTY TWO: Should Tenant be denied tax exemption under the Industrial
Incentives Act of Puerto Rico for the production of eligible manufactured
products as defined in said Act, for which it has applied, or will promptly
apply, to the Office of Industrial Tax Exemption, then, Tenant at its option, to
be exercised within thirty (30) days after having been notified of such denial,
may cancel and terminate this contract; provided, however, that Tenant shall be
liable, until satisfied in full, for all its obligations hereunder, including,
but without limitation, the payment of rent, prior and up to the date it
exercises such option and delivers the premises to the Landlord, and upon
performance of all such obligations Tenant shall be thereafter free and fully
released from this lease contract.
FIFTY THREE: Anything contained in this Contract to the contrary
notwithstanding, in the event that Tenant requires additional volume of water
and/or pressure as is now available within the area wherein the demised premises
are located, it shall be at its own cost and expense the construction and/or
installation of such improvements and/or facilities as may be necessary to or
convenient and/or required by the Puerto Rico Aqueduct and Sewer Authority to
increase such volume and/or pressure; it being agreed and understood, however,
that such construction and/or installation shall in no event be commenced until
after Landlord's written approval has first been requested and obtained.
FIFTY FOUR: Inasmuch as Tenant has represented that in order to carry
out its operations it is necessary to install and operate a steam sterilizer; it
is hereby specifically agreed and understood that:
(1) Such installations shall be made in coordination and with the
approval of the Landlord;
(2) Tenant shall request and obtain from the Environmental Quality
Board, the necessary permit to operate the said installations and, thereafter,
shall abide by and comply with all requisites imposed by the said Board for such
operations.
It being further agreed and understood that noncompliance by Tenant
with the foregoing provisions shall constitute an additional event of default
under the provisions of this Contract.
INITIAL HERE
[SIG]
------------
[SIG]
------------
<PAGE> 17
HYDRON PUERTO RICO, INC. SCHEDULE "B"
Page -2-
FIFTY FIVE: This Contract is made and entered into subject to and
conditioned upon the endorsement and approval of the Planning Department of the
Puerto Rico Industrial Development Company, the Office of Economic Studies of
the Economic Development Administration and the Environmental Quality Board of
Puerto Rico; provided that such approvals shall be understood to constitute
conditions of this Contract, which if not complied with, shall entitle the
Landlord to rescind this Contract.
FIFTY SIX: Tenant agrees to submit to Landlord within thirty (30) days
from the date of execution of this Contract: (a) evidence of its registration in
the Department of State of the Commonwealth of Puerto Rico and the name and
address of its resident agent; and (b) a certificate of a resolution of its
Board of Directors either authorizing or ratifying the execution of this
Contract.
INITIAL HERE
[SIG]
------------
[SIG]
------------
<PAGE> 18
FIRST SUPPLEMENT AND AMENDMENT TO LEASE CONTRACT
NOW come the PUERTO RICO INDUSTRIAL DEVELOPMENT COMPANY (hereinafter
referred to as the "LANDLORD") and HYDRON PUERTO RICO, INC. (hereinafter
referred to as the TENANT) and agree to supplement and amend a certain Lease
Contract entered into by them on September 14, 1984 (hereinafter referred to as
the "Contract") in connection with a certain landsite and building located at
Santa Isabel, Puerto Rico, identified as Project No. T-1315-0-80 (hereinafter
referred to as the "Original Premises") in the following respects:
ONE: From and after the date of delivery to TENANT of Project No.
T-0342-0-62 (hereinafter referred to as the "Additional Premises") a description
of which and encumbrances thereon, is set forth in Exhibit "A", attached hereto
and made a part hereof. Said Additional Premises shall be deemed an integral
part of the demised premises covered by the Contract and, as such, subject to
all terms and conditions included therein, as they may be herein supplemented
and amended. The Additional Premises shall be used and occupied in the
manufacture of contact lenses.
TWO: As a condition upon which the undertaking of the Landlord herein
is predicated, TENANT agrees as follows:
a) TENANT agrees to increase its total investment as provided in the
Contract by $125,000.00.
b) TENANT agrees to increase its investment in machinery and equipment
as provided in the Contract by $125,000.00.
c) TENANT agrees and undertakes to increase its employment by seventy
five (75) persons in addition to the persons TENANT is obligated to employ under
the existing Contract.
The foregoing increases are over and above TENANT'S total investment,
investment in machinery and equipment and employment heretofore required from
TENANT under the existing Contract, which for these purposes are fixed in
$300,000.00, $350,000.00 and 75 persons respectively.
<PAGE> 19
- 2 -
THREE: Rent shall begin to accrue and be payable on the first day of
the month following the date of delivery of the premises to TENANT by Landlord
at the followings rates:
A) $1.60 per square foot of gross building area during the first
sixty (60) months, equivalent to $1,530.16 monthly rent.
B) $2.00 per square foot of gross building area during the
remaining of the term of the Contract equivalent to $1,912.71
monthly rent.
FOUR: Simultaneously herewith TENANT shall deposit with LANDLORD the
amount of $1,530.16 in Certified Check. This deposit shall guarantee the
fulfillment by TENANT of its obligations under this Contract, particularly, but
not limited to the payment of rent and return of the Premises in proper
conditions at the termination of this Lease. On said termination, if TENANT is
not in default of any of the terms and conditions of this Contract, LANDLORD
will return to TENANT the sum of money, if any, held pursuant to this provision.
FIVE: TENANT agrees to accept possession of the demised premises, under
the provisions of this Contract, in its present condition and further agrees and
undertakes to put it in thorough repair, good order and safe conditions the said
premises, in coordination with LANDLORD'S Maintenance Department.
SIX: The parties hereto acknowledge that the demised premise are in
need of certain repairs as detailed in the Repairs Estimate hereto annexed and
made part hereof, which repairs shall be carried out by TENANT subject to the
following:
A) The repair work shall be done in coordination with LANDLORD'S
Maintenance Department and/or the Engineering Office.
B) LANDLORD hereby accepts to reimburse TENANT up to the amount of
$47,486.00; however, TENANT shall submit to Landlord evidence of payment of the
repair costs, for its evaluation and final approval of the amount to be
reimbursed.
C) Upon termination of the repairs and after the inspection and
approval of LANDLORD'S Maintenance Department and the Engineering Office,
LANDLORD hereby agrees that it will reimburse to TENANT such costs.
<PAGE> 20
- 3 -
D) Such repairs shall be finalized not later than sixty (60)
consecutive calendar days from the date of delivery of the premises to TENANT.
SEVEN: Anything contained in this Contract to the contrary
notwithstanding, in the event that Tenant requires additional volume of water
and/or pressure as is now available within the area wherein the demised premises
are located, it shall be at its own cost and expense the construction and/or
installation of such improvements and/or facilities as may be necessary to or
convenient and/or required by the Puerto Rico Aqueduct and Sewer Authority to
increase such volume and/or pressure; it being agreed and understood, however,
that such construction and or installation shall in no event be commenced until
after Landlord's written approval has first been requested and obtained.
EIGHT: TENANT hereby acknowledges that in the industrial park there are
other industries; therefore Tenant hereby specifically agrees and undertakes to
take such steps and install such equipment as may be necessary to prevent that
any hazard and/or noise which may be created by its operations may in any way or
manner unduly affect the operations of the other industries and therefore TENANT
hereby releases and saves Landlord harmless from any and all claims or demands
arising therefrom or in connection therewith.
NINE: Inasmuch as TENANT has represented that in order to carry out its
operations it is necessary to install and operate a vapor sterilization system;
it is hereby specifically agreed and understood that:
A) Such installations shall be made in coordination and with the
approval of LANDLORD;
B) TENANT shall request and obtain from the Environmental Quality
Board, the necessary permit to operate the said installations and, thereafter,
shall abide by and comply with all requisites imposed by the said Board for such
operations.
Tenant further agrees and undertakes to take such steps and install any
equipment as may be necessary to maintain the demised premises free of such
vapors as well as to prevent any emissions which may be created by its
operations to be dispersed
<PAGE> 21
4 -
outside of the building. It is agreed and understood that non-compliance by
Tenant with the foregoing provisions shall constitute an additional event of
default under the provisions of this Contract
TEN: If required by TENANT'S operations, Tenant shall, at its own cost
and expense, construct and/or install the necessary equipment to exceed the 50
KVA electric power in conformity with the Puerto Rico Electrical Power Authority
and TENANT shall obtain the endorsement and approval of LANDLORD'S Conservation
and Engineering Departments.
ELEVEN: If air conditioning is necessary for Tenant's operation it
shall be considered a special facility and Tenant must install it at its own
cost and expense and with the approval of Landlord's Conservation and
Engineering Departments.
TWELVE: TENANT shall, at its own cost and expense, install a fire
protections system and shall obtain the endorsement and approval of the Fire
Department for such installation. Tenant must also provide security measures to
prevent or reduce fire hazards due to the storage of inflammable materials and
products.
THIRTEEN: Any improvement to provide adequate disposal of non-sanitary
effluents, shall be at TENANT'S own cost and expense and: (i) TENANT agrees to
request and obtain from the Environmental Quality Board the necessary permit to
operate such improvements and/or installations; and, (ii) TENANT shall obtain
the endorsement and approval of the Planning Department of the Puerto Rico
Industrial Development Company.
FOURTEEN: TENANT, shall obtain the endorsement and approval from the
Environmental Quality Board for the operation of an atmosphere contamination
source. In addition, at its own cost and expense, shall implant the measures and
provide the required equipment to maintain the air level in and out of the
premises in conformity with the existing regulations as published by the
Environmental Quality Board, the Health Department, and the Federal
Administration of the Occupational Safety and Health Act (OSHA).
FIFTEEN: It is hereby agreed and understood that TENANT shall take the
necessary steps to carry out with objectives, Regulations and Law Requirements
of the Puerto Rico Occupational Safety and Health Office (PROSHO).
<PAGE> 22
-5-
SIXTEEN: TENANT agrees to submit to LANDLORD within thirty (30) days
from the date of execution of this Contract: (a) evidence of its registration in
the Department of State of the Commonwealth of Puerto Rico and the name and
address of its resident agent; and (b) a certificate of a resolution of its
Board of Directors either authorizing or ratifying the execution of this
Contract.
SEVENTEEN: This Contract is made and entered into subject to and
conditioned upon the endorsement and approval of the planning Department of the
Puerto Rico Industrial Development Company, the Office of Economic Studies of
the Economic Development Administration and the Environmental Quality Board of
Puerto Rico; provided that such approvals shall be understood to constitute
conditions of this Contract, which if not complied with, shall entitle the
LANDLORD to rescind this Contract.
EIGHTEEN: All the terms and conditions of the Contract shall be deemed
supplemented and amended to the extent inconsistent with the terms hereof and
shall remain in full force and effect as herein supplemented and amended.
In Witness whereof, the parties hereto execute this Contract at San
Juan, Puerto Rico, this October 6, 1986.
PUERTO RICO INDUSTRIAL DEVELOPMENT
COMPANY
BY: [SIG]
-----------------------------------------------
HYDRON PUERTO RICO, INC.
BY: [SIG]
-----------------------------------------------
<PAGE> 23
SCHEDULE "A"
DESCRIPTION OF PARCEL OF LAND IDENTIFIED
AS LOT NO. 3 LOCATED AT SANTA ISABEL
INDUSTRIAL AREA, SANTA ISABEL, PR (SITE
OF PROJECT NO. T-0342-0-62
LANDSITE:
Parcel of land identified as Lot No. 3, located at Santa Isabel
Industrial Area, Santa Isabel, Puerto Rico.
It bounds: by the NORTH, with Lot No. 2 of the same industrial area; by
the SOUTH, with Lot No. 4 of the same industrial area by the EAST, with Lots 13
and 15 of the same industrial area; and by the WEST; with State Road No. 538.
It has an approximate surface area of 6076.00 square meters, equivalent
to 1.5459 cuerdas.
ENCUMBRANCES:
It is affected by 12.5 feet wide right of way in favor of P.R.E.P.A.
running along its eastern boundary.
PROJECT NO. T-0342-0-62:
This is a pitched roof type building consisting of reinforced concrete
foundations, columns and girders supporting 30 feet long steel joists which in
turn support prestressed concrete slabs (poretes), covered by 1/2" fiberglass
insulation and a 3 plies built-up roofing. This building has no monitor but roof
ventilators are provided.
The structure consists of a main floor 120'-10" x 91'-3" out to out
dimensions with an area of 11,025.74 sq. ft. of manufacturing space; one lean-to
31'-3" x 10'-6" for an area of 328.13 for sanitary facilities and an entrance
porch 17'-11" x 6'-10" for an area of 122.39 sq. ft. This gives a total area of
11,476.26 sq.ft.
The floor slab is designed for a load capacity of 150 P.S.F and
consists of a 4" thick reinforced concrete slab with monolithic cement finished
except at men's room which has ceramic tiles.
Interior walls at lean-to are plastered and painted together with a
6'-11" high epoxy paint.
<PAGE> 24
-2-
Exterior walls are of concrete blocks plastered and painted on both
sides except on the front wall which has a stucco cement finish.
Ceiling is painted throughout the building.
Windows are of aluminum miami type.
Interior doors are made of hollow flush plywood type and exteriors are
industrial type metal ones. Has 10' x 10' metal rolling door at loading area.
Clearance in the manufacturing area from finished floor to lowest part
of frame beams at eaves is 12'-2".
<PAGE> 1
EXHIBIT 10.14
DATED NOVEMBER 30, 1995
BOOTS THE CHEMISTS LIMITED(1)
OCULAR SCIENCES LIMITED(2)
OSI CORPORATION(3)
---------------
COUNTERPART
UNDERLEASE
OF
DISTRIBUTION DEPOT
CHANDLERS FORD INDUSTRIAL ESTATE
SCHOOL LANE
CHANDLERS FORD
SOUTHAMPTON
HAMPSHIRE
---------------
Messrs Shoosmiths & Harrison
22a The Ropewalk
Nottingham NG1 5DT
Tel: 0115 9474645
Fax: 0115 9475556
Ref: SRB
<PAGE> 2
THIS UNDERLEASE is made the 30th day of November, One thousand nine hundred and
ninety-five BETWEEN BOOTS THE CHEMISTS LIMITED, a Company registered in England
under Company No. 928555 and having its registered office at NOTTINGHAM NG2 3AA
(hereinafter called "the Landlord" of the first part and OCULAR SCIENCES
LIMITED, a Company registered in England under Company No. 1908318 and having
its registered office at Yeoman Industrial Park Test Lane Nursling Southampton
SO1 9JX (hereinafter called "the Tenant") of the second part and OSI
CORPORATION, a company registered in California (hereinafter called "the
Guarantor") of the third part.
WITNESSETH as follows:
1.(l) The expressions following shall have the meanings hereinafter mentioned
(that is to say):
(a) "the Landlord" shall include the person for the time being
entitled to the reversion immediately expectant on the
determination of the term hereby granted
(b) "the Superior Landlord" shall include all persons having an
interest in the Demised Premises superior to and paramount to
the Landlord's interest
(c) "the Headlease" shall mean the Landlords lease of the demised
premises dated 20th January 1986 and made between (1) Macstone
Company (Development) Limited and (2) The Landlord
(d) "Insured Risks" has the meaning ascribed by clause 1(c) of the
Headlease,
2.(1)(a) Where the Tenant or the Surety is more than one person the
covenants on the part of the Tenant or the Surety herein shall
be deemed to be made by such persons jointly and severally
-1-
<PAGE> 3
(b) Any covenant by the Tenant not to do an act or thing herein
contained shall (where the context admits) include a prohibition
of the sufferance or permitting of the same
(c) Any reference to a specific statute shall include any
modification extension or re-enactment thereof for the time
being in force and shall also include all instruments, orders,
plans, regulations, permissions, and directions for the time
being made, issued or given thereunder or deriving validity
therefrom
(d) In the following cases any reference to the Landlord shall be
deemed to include a reference to any Superior Landlord and to
any mortgagee of any interest of the Landlord or of any Superior
Landlord or both:
(i) Where there are rights, easements, exceptions, and
reservations exercisable by the Landlord
(ii) Where there is an obligation to obtain consent from or
give notice to the Landlord
(iii) Where there is provision for repayment to the Landlord
of any expenses incurred
(iv) Where there are any indemnities in favour of the
Landlord
2. IN consideration of the rent and Tenant's and Surety's covenants
hereinafter reserved and contained the Landlord hereby demises
unto the Tenant ALL THAT piece or parcel of land situate in the
Parish of Chandlers Ford in Hampshire which is for the purpose
of identification only more particularly delineated on the plan
annexed hereto and thereon edged red TOGETHER with the building
erected thereon (all which said land and premises are
hereinafter
-2-
<PAGE> 4
called "the demised premises") TOGETHER with the rights (in common with the
Landlord, the Superior Landlord and their respective successors in title and all
others entitled to a like right) specified in the Headlease EXCEPTING AND
RESERVING unto the Landlord, the Superior Landlord and their respective
successors in title and all others entitled to a like right the easements and
rights specified in the Headlease AND SUBJECT ALSO to the matters contained or
referred to in the documents brief particulars whereof are set out in the
Headlease TO HOLD (except and reserved as aforesaid) unto the Tenant for the
term from and including the 7th day of July, One thousand nine hundred and
ninety five to the 23rd day of December 2010 YIELDING AND PAYING therefor unto
the Landlord during the term and so in proportion for any less time than a year
without any deductions therefrom whatsoever the following rents namely: (a) from
the date of execution of this Lease until the 31st day of December, 1995, the
yearly rent of a peppercorn and thereafter during the remainder of the term the
yearly rent of Two Hundred and Thirty Five Thousand Pounds (L235,000) or such
higher yearly rent as may become payable pursuant to review under clause 8
hereof payable in advance on the usual quarter days in each year and (b)
throughout the term sums equal to the total amounts which the Landlord shall pay
by way of premium (including the premium payable under the Headlease and the
whole of any increase in any premium from time to time as a result of or arising
out of the manner or the purposes in or for which the demised premises are kept,
used and occupied) for keeping insured the demised premises in accordance with
the terms of the
-3-
<PAGE> 5
Headlease such sum to be paid once a year on demand
3. IT IS hereby acknowledged that the Tenant shall not be or become
entitled to any right of access light or air to the demised premises or
to any other rights privileges or easements which would restrict or
interfere with the user of any adjoining or neighbouring land for
building or any other purpose AND PROVIDED FURTHER that no estate or
interest in the soil of any road and footpath now or hereafter adjacent
to the demised premises is or shall be deemed to be included in the
demise hereinbefore contained
4. THE Tenant HEREBY COVENANTS with the Landlord in manner following that
is to say:
(1) (a) To pay the yearly rent hereinbefore reserved and made payable
without any deduction at the times and in the manner aforesaid
(b) Without prejudice to the Landlord's right of re-entry in the
event of any rent or rents remaining unpaid after becoming due
to pay to the Landlord interest on the amount outstanding at
three per centum per annum above the base rate from time to
time of National Westminster Bank plc as at the date the said
rent or rents were due in respect of the period from the due
date until up to and including the date on which the said rent
or rents are paid to the Landlord
(2) To pay all general rates water rates drainage rates and all other rates
taxes duties charges assessments and outgoings whatsoever which are now
or which may be at any time during the said term be assessed charged or
imposed upon or payable in respect of the demised premises or any part
thereof or the owner or occupier thereof save any taxes which may be
assessed or imposed upon the Landlords interest in reversion
-4-
<PAGE> 6
(3) During the said term well and substantially to repair cleanse maintain
and amend the whole of the demised premises and every part thereof and
the Landlord's fixtures and fittings therein including the boundary
walls and fences and paths sewers drains conduits gutters pipes and the
sanitary and water apparatus thereon and the appurtenances thereof (but
not the Tenant's fixtures) (damage by the Insured Risks always excepted
save where payment of insurance monies have been refused or the
insurance vitiated by act or default of the Tenant) and keep the same so
repaired cleansed maintained and amended (except as aforesaid)
(4) To paint with two coats of good quality paint in a proper and
workmanlike manner all the wood and iron and stucco or cement parts of
the demised premises usually painted as to the external parts in the
year 1998 and thereafter once in every period of three years of the term
and also in the last year of the term (whether determined by effluxion
of time or otherwise howsoever) but not so that the Tenant is obliged to
decorate more than once in the last 18 months of the term and as to the
internal parts in the year 2002 and thereafter once in the next period
of the term and also in the last year of the term but not so that the
Tenant is obliged to decorate more than once in the last 18 months of
the term (howsoever determined) and after every internal painting to
grain varnish emulsion stop wash whiten and colour all such parts as
require to be so dealt with
(5) To permit the Landlord or its duly authorised agent respectively for the
time being with or without workmen and others during the said term at
reasonable times during the day time after two days' notice in writing
except in case of emergency to enter upon the demised premises and every
part thereof to view the state of repair and condition of the same and
of all defects decays and wants of reparation there found which the
-5-
<PAGE> 7
Tenant is liable to make good under the covenants hereinbefore contained to give
notice in writing to the Tenant to repair all such defects decays and wants of
reparation and forthwith well and substantially to commence to repair and make
good all such defects and decays and wants of reparation to the demised premises
and any buildings or erections thereon at the Tenant's cost and complete the
same with all due diligence PROVIDED that if the Tenant shall not within two
months after the service of such notice proceed diligently with the execution of
such repairs it shall be lawful for the Landlord at any time after the
expiration of such two months (but not after the Tenant has commenced the
repairs) to enter upon the demised premises to employ workmen to repair and make
good all such defects decays and wants of reparation at the expense of the
Tenant and the costs and expenses of such repairs shall be repaid by the Tenant
to the Landlord on demand as liquidated damages
(6) At the end or sooner determination of the term hereby granted to yield
up the demised premises (but not the Tenant's or other trade fixtures)
well and substantially repaired cleansed maintained and amended and
painted in accordance with the Tenant's covenants herein contained
(damage by the Insured Risks save as aforesaid always excepted)
(7) (i) (a) Not without the previous consent in writing of the Landlord and
the Superior Landlord which shall not be delayed or unreasonably withheld:
(A) To cut or damage or permit to be cut or damaged any part
of the structure or exterior works the principal walls
foundations steel frames or timbers or the subfloors and
suspended floors and roof over the demised premises
-6-
<PAGE> 8
(B) To build erect construct or place or permit or suffer to
be erected constructed or placed any new or additional
buildings or erections or works on the demised premises
or any part thereof
(C) Make any additional access way through the boundary
fences or walls of the demised premises
(D) Make any structural alteration or addition to the
demised premises or change the existing external design
or appearance of the demised premises
(b) Not to make or suffer to be made any change in or to the
use of the demised premises which would by virtue of the
Town and Country Planning Act 1971 or any statutory
replacement or amendment thereof and orders made
thereunder (hereinafter called "the said Act") require
permission for such change of use to be obtained from
the Local Planning Authority as defined by the said Act
without first obtaining such permission and to submit
for the approval (such approval not to be delayed or
unreasonably withheld) of the Landlord and the Superior
Landlord plans elevations section and specifications of
the proposed works and duly apply to the Local Planning
Authority for all such permissions as may be necessary
under or by virtue of the said Act on behalf of the
Landlord and the Superior Landlord and all other persons
(if any) who to the knowledge of the Tenant may for the
time being be interested in the demised
-7-
<PAGE> 9
premises and also will give to the Landlord and the
Superior Landlord notice of such permission if granted
within fourteen days of the receipt of the same from the
said Planning Authority And also at all times to
indemnify and keep indemnified the Landlord and the
Superior Landlord from and against all proceedings
actions costs expenses claims and demands whatsoever in
respect of any such application And not to commence to
carry out such works approved by the Landlord and the
Superior Landlord as aforesaid prior to the receipt by
the Tenant of all consents and permissions as aforesaid
And if the Tenant shall take any step amounting to the
beginning of the works approved as aforesaid then the
Tenant will upon receiving notice in writing from the
Landlord or the Superior Landlord proceed forthwith to
complete such works in accordance with all such consents
permissions and approved plans and specifications as
aforesaid and if the Tenant shall neglect to do so for
the space of Two calendar months after the service of
such notice by the Landlord or the Superior Landlord it
shall be lawful for the Landlord or the Superior
Landlord or its servants contractors agents and workmen
to enter upon the demised premises and to complete such
works in accordance with such approved plans and
specifications and all expenses of so doing shall be
repaid to the Landlord or the Superior Landlord (as
appropriate) by the
-8-
<PAGE> 10
Tenant within Twenty-one days of the service of a
written demand in that behalf of the Tenant
(ii) Not to do or omit to suffer to be done or omitted any act matter
or thing in or respecting the demised premises required to be
omitted or done by the Tenant by the said Act or which shall
contravene the provisions of the said Act and will at all times
hereafter indemnify and keep indemnified the Landlord against
all actions proceedings costs expenses claims and demands in
respect of any such act matter or thing contravening the
provisions of the said Act as aforesaid and which shall be due
to any act or omission of the Tenant and not of the Landlord or
any other person claiming through under or in trust for the
Landlord
(iii) Forthwith on demand to pay to the Landlord all costs charges and
expenses reasonably and properly incurred or paid by the
Landlord by virtue of or in connection with any act matter or
thing arising under or by virtue of the said Act if occasioned
by any act or omission of the Tenant
(iv) If the Tenant shall without such consent as aforesaid build
erect construct or place or permit or suffer to be built erected
constructed or placed any new or additional buildings or
erections or works on the demised premises or any part thereof
or make any additional accessway through the boundary fences or
walls of the demised premises or make any structural alteration
or addition to the demised premises or change the existing
design or external appearance of the demised premises the
Tenant shall immediately upon notice in writing from the
Landlord requiring it so to do remove all such new or additional
buildings
-9-
<PAGE> 11
erections works alterations or additions and make good and
restore the demised premises to the state and condition thereof
existing before the breach by the Tenant of sub-clause (i) of
this clause and make good and correct any changes to the
existing external design or appearance of the demised premises
as directed by the Landlord and if the Tenant shall neglect so
to do for the space of Fourteen days after such notice then it
shall be lawful for the Landlord or its servants contractors
agents and workmen to enter upon the demised premises and to
remove such new or additional buildings erections works
alterations or additions or changes to the existing design or
appearance of the demised premises and to make good and restore
the demised premises to the state and condition existing before
the breach by the Tenant of sub-clause (i) hereof and all
expenses of so doing shall be repaid to the Landlord by the
Tenant within Twenty-one days of the service of a written demand
in that behalf on the Tenant
(8) Not knowingly to permit any encroachment to be made or easement to be
acquired on or over the demised premises and in particular not to allow
the right of access of light from or over the demised premises to any
neighbouring property to be acquired and if any encroachment or easement
shall be made or threatened to be made or if any window or opening shall
be made or threatened to be opened or made in any neighbouring building
(whether already or hereafter to be erected) which if not obstructed
might by lapse of time confer the right to such access or light in
favour of any neighbouring property forthwith to give notice to the
Landlord and at the option of the Landlord either to do (at the
Landlord's cost and expense) all such things as may be reasonably
required by the Landlord for the purpose of preventing the making of
-10-
<PAGE> 12
such encroachment or the acquisition of such easement or right or allow
the Landlord with workmen and others to enter and take measures for
preventing the same AND if the Tenant shall omit or neglect to do all
such things as aforesaid at the earliest possible time it shall be
lawful for the Landlord its servants and workmen to enter upon the
demised premises and to do the same provided the Landlord shall give
five days due warning of its intention to enter upon the premises and in
so entering or being upon the premises shall not nor shall its servants
and workmen cause any unnecessary interference with the carrying on by
the Tenant of the Tenant's business on the demised premises AND any
costs incurred by the Landlord under this clause by reason of the
Tenants default in performing this covenant shall be repaid to the
Landlord by the Tenant within twenty-one days of a written demand in
that behalf
(9) To comply at all times during the said term with all statutory and other
requirements for ensuring the health safety and welfare of the persons
using or employed in or about the demised premises or any part thereof
and to indemnify and keep indemnified the Landlord against any breach or
non-observance thereof
(10) To execute all works on or in respect of the demised, premises now or
from time to time throughout the term lawfully required to be executed
by any local or public authority whether the said work shall be required
to be executed by the Landlord or by the Tenant and at all times
hereafter during the term hereby granted to indemnify and keep
indemnified the Landlord against all claims and liabilities in respect
thereof
(11) Not to do or permit or suffer to be done upon the demised premises or
any part thereof anything which may render the Policy or Policies of
Insurance effected by the Superior Landlord void or voidable And to
repay to the Landlord by way of additional rent all
-11-
<PAGE> 13
sums paid by way of increased premium as a result of or arising out of
the manner or the purposes in or for which the demised premises are kept
used and occupied and all expenses incurred by it in or about any
renewal of such Policy or Policies rendered necessary by a breach of
this covenant
(12) In the event of the demised premises or any part thereof being damaged
or destroyed by any of the Insured Risks at any time during the term
hereby granted and the insurance money under any policy of insurance
effected thereon by the Superior Landlord being wholly or partially
irrecoverable by reason solely or in part of any act default or neglect
of the Tenant the Tenant will forthwith (in addition to the said rent)
pay to the Landlord the whole or (as the case may be) a fair proportion
of the cost of rebuilding and reinstating the same any dispute as to the
proportion to be so contributed by the Tenant to be referred to
arbitration in accordance with the provisions of the Arbitration Acts
1950 and 1979 or any statutory modification or re-enactment thereof for
the time being in force
(13) If at any time the Tenant is entitled to the benefit of any insurance on
the demised premises then to apply all moneys received by virtue of
such insurance in making good the loss or damage in respect of which the
same shall have been received
(14) To permit the Landlord and the Superior Landlord and their respective
agents at all reasonable times at convenient hours in the day and upon a
previous appointment being made to enter upon the demised premises to
take Inventories of the Landlord's fixtures therein
(15) Not to use or permit or suffer the demised premises to be used other
than in accordance with Classes III IV and X of the Town and Country
Planning (Use
-12-
<PAGE> 14
Classes) Order 1972 or in accordance with Class B1 of the Town and
Country Planning (Use Classes) Order 1987 together with ancillary
offices except with the previous consent of the Landlord and the
Superior Landlord which consent shall not be unreasonably withheld so
however that the Landlord's and the Superior Landlord's consent shall
not be treated or construed as being unreasonably withheld if it is
withheld on the grounds or any of the grounds following that is to say
(i) that the trade or business to be carried on is not one which the
Landlord or the Superior Landlord considers to be quiet and
inoffensive
(ii) that the giving of consent would result in a change of user
constituting development within the provisions of any Town and
Country Planning Act order plan regulation permission consent or
direction at the time being in force or any change of use which
although not constituting development would prevent reversion to
the present use of the demised premises
(16) Not to use or permit to be used the demised premises or any part or
parts thereof for the purpose of holding public auctions operating
roundabouts shooting galleries swings or shows or for any similar
purpose leading to the assembly of the public on the demised premises or
any part or parts thereof PROVIDED ALWAYS that nothing contained in this
sub-clause shall prevent the Tenant from using the demised premises for
the purpose mentioned in sub-clause (15) hereof
(17) Not to use the demised premises or any part or parts thereof or permit
or suffer the same to be used for any noisy noxious or offensive trade
or business or for any illegal or immoral purposes or as licensed
premises or as a Club or as a dwellinghouse nor to keep or permit to be
kept on the demised premises material of a dangerous or
-13-
<PAGE> 15
explosive nature (other than in quantities normally stocked by the
Tenant in the course of their business subject to the Tenant obtaining
any necessary approvals) nor to permit or suffer to be done in or upon
the demised premises anything which may be or become a danger or
nuisance or which may cause damage to the Landlord or its lessees or
tenants or occupiers of any adjoining or neighbouring property or
whereby the insurance premium for adjacent premises shall require to be
increased and not to use or permit or suffer to be used any portion of
the demised premises or anything connected therewith as a place of
amusement or as an advertising station or for the display of board
posters notices or signs PROVIDED THAT the foregoing shall not apply to
any notices or signs for which (if necessary) the Tenant has obtained
planning permission relating to the display of the Tenants name style
title and business and any matter which the Tenant is by law required to
exhibit or display
(18) To permit the Landlord at any time during the six months immediately
preceding the determination of the said term to enter upon the demised
premises and affix and retain without interference upon any part thereof
but not in such position as shall interfere with the Tenants use and
enjoyment of the demised premises a notice for re-letting or selling the
same and to permit all persons with written authority from the Landlord
at all reasonable times during the daytime to enter and view the demised
premises
(19) Not in any way to obscure or permit to be obscured the windows of the
demised premises and to clean the interior and exterior of the said
windows as often as may be necessary throughout the said term and in any
event at least once in every three months
(20) (i) Not to assign demise underlet hold on trust charge mortgage or
otherwise share
-14-
<PAGE> 16
the possession or occupation or part with the possession or
occupation of any part or the whole of the demised premises or
to share occupation of the whole
(ii) Not to assign underlet demise charge mortgage or otherwise part
with possession of the whole of the demised premises for all or
any part of the said term without the license in writing of the
Landlord and the Superior Landlord first obtained (such consent
not to be delayed or unreasonably withheld).
(a) Provided however that should the Tenant desire to assign
demise underlet charge mortgage or otherwise part with
possession as aforesaid it shall before so doing and
before giving possession to the intended assignee
underlessee or charge execute and deliver to the
Landlord a deed to be prepared by the Solicitor of the
Landlord (the connection therewith) containing in the
case of an assignment a covenant by the intended
assignee directly with the Landlord to perform and
observe during the remainder of the term hereby granted
or in the case of an underlease or charge during the
term granted to the underlessee or chargee the covenants
(including this present covenant) by the Tenant and
conditions contained in this Lease and in the same
manner as if such covenants and conditions were repeated
in extenso in such deed with the substitution of the
name of the intended assignee underlessee or chargee for
the name of the Tenant and with such other alterations
as the deaths of parties or as other circumstances shall
render necessary
(b) Provided further that if the Landlord shall reasonably
require at least two (or more if the Landlord reasonably
requires) of the Company's
-15-
<PAGE> 17
directors of satisfactory standing shall join in such
deed as sureties for such company in order jointly and
severally to covenant with the Landlord as sureties that
such company will pay the rents reserved by and perform
and observe the covenants and conditions contained in
this Lease and to indemnify and save harmless the
Landlord against all loss damage costs and expenses
arising by reason of any default by the Company And that
such covenant shall further provide in the usual form
that any neglect or forbearance of the Landlord shall
not release or exonerate the sureties and shall further
provide for the sureties to accept a new lease of the
demised premises upon disclaimer of these presents by
the Company or on its behalf if so required by the
Landlord within three months of such disclaimer such new
lease to be for the residue then unexpired of the term
hereby granted and at the rents payable and subject to
the same lessees covenants and to the same provisos and
conditions as those in force immediately before such
disclaimer and to be granted at the cost of the sureties
in exchange for a counterpart duly executed by the
sureties
(c) On the grant of any permitted underlease to obtain
therein and at all times thereafter to enforce
performance and observance of covenants on the part of
the underlessee as follows:-
(i) an absolute covenant not to assign demise underlet
charge mortgage or otherwise part with possession of any
part of the sub-demised premises (here meaning a
portion only and not the whole thereof) or to share
-16-
<PAGE> 18
occupation of the whole or any part thereof for all or
any part of the sub-term
(ii) a qualified covenant not to assign demise underlet
charge mortgage or otherwise part with possession of the
whole of the sub-demised premises without the license in
writing of the landlord (the grant of which shall be
subject to the same provisos as hereinbefore set forth
in this clause)
(iii) a covenant that the underlessee will cause to be
inserted in every sub-underlease whether immediate or
derivative covenants on the part of the relevant
sub-underlessee corresponding to the covenants number
(i) and (ii) above and that the underlessee will at all
times enforce the same
(d) Notwithstanding anything herein contained the Tenant
shall not create or permit the creation of any interest
derived out of the term hereby granted howsoever remote
or inferior upon the payment of fine or premium or at a
rent less than the full market rent (obtainable without
taking a fine or premium) of the demised premises and
shall not create or permit the creation of any such
derivative interest as aforesaid save by instrument in
writing containing such absolute prohibition as
aforesaid on the part of the underlessee and those that
may derive title under such underlessee
[(iii) Notwithstanding the foregoing provisions of this sub-clause the Tenant
may without the consent of the Superior Landlord and the Landlord share
occupation of the whole or any part of the demised premises with the
Guarantor and/or with a company that is a member of the same group as
the Tenant within the
-17-
<PAGE> 19
meaning of Section 42 of the Landlord & Tenant Act 1954 provided that:
(a) the relationship of landlord and tenant is not created
and
(b) the occupation by any such group company shall cease
forthwith upon its ceasing to be a member of the same
group as the Tenant and
(c) the Landlord is informed in writing of the name of each
occupier before it commences to occupy and is
immediately notified in writing after it ceases to
occupy] NB Subject to Superior Landlord's consent
(21) Within one calendar month after the date of any such document or
instrument as hereinafter mentioned to produce to the Landlord's
Solicitors a certified copy of every transfer or assignment mortgage or
legal charge of this Lease or the demised premises and also of every
underlease of the demised premises and of every assignment of such
underlease and also of every probate letters of administration order of
court or other instrument effecting or evidencing a devolution of title
as regards the term hereby granted or any such underlease as aforesaid
for the purpose of registration and to pay the Landlord's Solicitors
reasonable charges for the registration of each such copy document or
instrument so produced such charges not being less than ten pounds plus
VAT
(22) To pay on an indemnity basis all expenses including Solicitor's costs
and Surveyors fees reasonably and properly incurred by the Landlord
incidental to the preparation and service or contemplation of service of
a notice or notices under Section 146 and 147 of the Law of Property Act
1925 notwithstanding forfeiture is avoided otherwise than
-18-
<PAGE> 20
by relief granted by the Court
(23) Not knowingly to permit oil grease or other corrosive or deleterious
objectionable dangerous poisonous explosive matter or substances to
enter the drains sewers ditches watercourses or culverts and to take all
reasonable measures for ensuring that any effluent discharged will not
be corrosive or otherwise harmful or cause obstruction or deposit within
the said drains sewers ditches watercourses or culverts to or within the
sewage disposal works or to the bacteriological process of sewage
purification
(24) Not to use any fuel burning apparatus on the demised premises or any
part thereof (other than such apparatus as utilises gas electricity or
oil) save such as shall have been approved in writing by the Landlord
prior to such use (such approval not to be delayed or unreasonably
withheld)
(25) On a written notice being served by the Landlord requiring the abatement
of any nuisance caused by vibration noise or offensive smell or by any
undue emission of smoke fumes vapour or dust with all reasonable
dispatch after the service of such notice to abate the same accordingly
and in all respects to comply with the provisions of the Clean Air Acts
1956 and 1968 and the requirements of any notice of the Local Authority
served thereunder
(26) Not to form any refuse dump or rubbish or scrap heap on the demised
premises but to remove not less frequently than once a month all refuse
rubbish used tins cans boxes and other containers which may have
accumulated on the demised premises and generally to keep all vacant
land forming part of the demised premises clean and in good order
(27) Not to carry on upon the demised premises the manufacture or production
of gas
-19-
<PAGE> 21
electricity steam or hot water except for the requirements of the
Tenant's own business and not to supply gas electricity steam or hot
water to any other lessee tenant or occupier on the adjoining or
neighbouring land
(28) Not to sell or dispose of any earth clay gravel or sand from the land
hereby demised nor to make any excavation (except for the purpose of any
alteration or addition to the demised premises or any part thereof for
which the previous consent in writing of the Landlord and the Superior
Landlord shall have been obtained) or sink any well upon the demised
premises
(29) To maintain any forecourt yards and all lawns gardens trees shrubs and
hedged forming part of the demised premises in proper and neat order
and condition and free from noxious weeds and not to store any goods
plant or machinery or display any goods plant or machinery for sale
outside the building forming part of the demised premises and not to cut
down any trees shrubs or hedges to be planted by the Landlord or at
present growing on any part of the demised premises
(30) Not knowingly to obstruct or create a nuisance of any kind on roads and
footpaths in the neighbourhood of the demised premises and not to carry
out loading and unloading save within the boundaries of the demised
premises
5. THE Landlord HEREBY COVENANTS with the Tenant that the Tenant paying the
rent hereby reserved and observing and performing the several covenants
and stipulations herein on its part contained shall peaceably hold and
enjoy the demised premises during the said term without any interruption
by the Landlord or any person rightfully claiming through under or in
trust for it
6. The Landlord hereby further covenants with the Tenant:
-20-
<PAGE> 22
(1) To pay the rent reserved by and to perform and observe the tenant's
covenants contained in the Headlease and to indemnify the Tenant against
any breach of such covenants so far as they do not fall to be performed
by the Tenant under this Underlease
[(2) Without prejudice to the generality of sub-clause (1) of this clause to
procure that the demised premises are insured against the Insured Risks
in accordance with the terms of the Headlease and in particular to:
(i) produce to the Tenant on demand a copy of the policy and the
last premium renewal receipt and
(ii) procure that the interest of the Tenant is noted or endorsed on
the policy and
(iii) notify the Tenant of any change in the risks covered by the
policy from time to time and
(iv) produce to the Tenant on demand written confirmation from the
insurers that they have agreed to waive all rights of
subrogation against the Tenant] NB Subject to Superior
Landlord's consent
(3) On the written request and at the cost of the Tenant to use all
reasonable endeavours to enforce the covenants on the part of the
landlord contained in the Headlease
(4) To use all reasonable endeavours to obtain the consent of the Superior
Landlord required under the Headlease when:
(i) the Tenant has applied for consent under this Underlease
(ii) the Landlord gives that consent or could not reasonably refuse
-21-
<PAGE> 23
it or gives the consent subject to consent being obtained from
the Superior Landlord and
(iii) consent is required under the Headlease
7. IT IS hereby agreed and declared as follows
(1) That if the rents hereinbefore reserved or any part thereof
shall at any time be in arrear and unpaid for twenty one days
after the same shall have become due (whether legally demanded
or not) or if the Tenant shall at any time fail or neglect to
perform or observe any of the covenants or agreements herein
contained and on the Tenant's part to be performed and observed
or if the Tenant for the time being shall become bankrupt or
being a company shall enter into liquidation whether compulsory
or voluntary (other than for the purpose of reconstruction or
amalgamation) or if the Tenant for the time being shall enter
into any arrangement or composition for the benefit of the
Tenant's creditors then and in any such case it shall be lawful
for the Landlord or any person or persons duly authorised by the
Landlord in that behalf to re-enter into and upon the demised
premises or any part thereof in the name of the whole and
thereupon this demise shall absolutely determine but without
prejudice to any right of action or remedy of the Landlord in
respect of any antecedent breach by the Tenant of any of the
covenants or agreements herein contained
(2) If the demised. premises or any part thereof is destroyed or
damaged by any of the Insured Risks so as to render the demised
premises unfit for use and occupation or inaccessible then
unless payment of the insurance monies shall be
-22-
<PAGE> 24
refused in whole or in part by reason of any act or default of
the Tenant the Landlord shall procure the rebuilding and
reinstatement of the demised premises by the Superior Landlord
in accordance with the terms of clause 4(2) of the Headlease
(3) If the demised premises or any part thereof are destroyed or
damaged by any of the Insured Risks so as to render the demised
premises unfit for use and occupation or inaccessible then
unless payment of the insurance monies shall be refused in whole
or in part by reason of any act or default of the Tenant the
rents reserved by this Underlease or a fair proportion of them
according to the nature and extent of the damage shall be
suspended until the demised premises or the part destroyed or
damaged shall again be rendered fit for use and occupation and
accessible. Any dispute regarding the cesser of rent shall be
determined by an independent surveyor who shall act as an expert
and not an arbitrator appointed by agreement between the parties
or in default of agreement within fourteen days of one party
giving notice to the other of its nomination or nominations
nominated by the President for the time being of the Royal
Institution of Chartered Surveyors the duly appointed deputy of
the President or any person authorised by the President to make
appointments on his behalf
(4) If during the last three years of the term the demised premises
shall be so destroyed or damaged by an Insured Risk as to be
completely unfit for occupation and use the Tenant may by not
less than one months notice given to expire at any time
determine this Underlease and upon expiry of such notice this
Underlease shall determine without prejudice to any rights or
remedies
-23-
<PAGE> 25
which may then have accrued to either party against the other in
respect of any breach of any of the covenants and conditions
contained in this Underlease and upon the expiry of such notice
the Landlord shall pay to the Tenant such compensation as would
have been payable on the assumption the Landlord had served a
notice under Section 25 of the Landlord & Tenant Act 1954 that
specified the date upon which notice expired as the date at
which the tenancy was to come to an end and the Court had been
precluded from ordering a new tenancy by virtue of Section
30(l)(f) of the said Act and the Landlord shall be entitled to
retain the insurance monies received by the Landlord
8. THE rent payable under this Lease in accordance with the provisions of
Clause 2 shall be agreed or determined as follows:
(a) a review date (hereinafter called "a review date") for the
purpose of this clause shall be the Twenty fifth day of December
in the years 2000 and 2005 and "review period" means the
period between the review dates or between the last review date
and the expiry of the term
(b) The Landlord and the Tenant shall (prior to a review date)
endeavour to agree upon a fair market rack rental (as defined by
sub-clause (c) of this present clause) but if agreement has not
been reached by the quarter day immediately preceding a Review
Date then either party may at any time thereafter refer the
question of what is a fair market rack rental of the demised
premises to a Surveyor to be mutually agreed between the
Landlord and the Tenant or in default of agreement to be
nominated by the President for the time being of the Hampshire
Incorporated Law Society and such Surveyor whether agreed or
-24-
<PAGE> 26
nominated as aforesaid shall act as an expert and not an
Arbitrator and the decision of such Surveyor shall be binding on
the Landlord and the Tenant and the Surety The said Surveyor's
fee shall be payable by the Tenant and the Landlord in equal
shares. The fair market rack rental as so agreed or determined
shall be the annual rent payable hereunder for the next review
period and in addition to the insurance rent Provided that if
such reviewed rent shall not have been determined prior to the
relevant review date the rent payable for the period immediately
preceding the relevant review date shall continue to be payable
and any difference between the previous rent and reviewed rent
during such period as this proviso operates shall be added to
and be payable with the next instalment of rent due after the
reviewed rent has been determined. It is hereby declared that
the expression "in default of agreement" shall include the
failure or omission of the Landlord and Tenant to agree by
reason of no attempt or no sufficient attempt having been made
to seek or reach agreement or to instruct a Surveyor for that
purpose
(c) the expression "fair market rack rental" shall for the purposes
of this clause mean the amount which would in addition to the
insurance rent be the annual amount obtainable at the
appropriate date of review as between a willing Landlord and a
willing tenant in respect of the demised premises on a letting
thereof as a whole with vacant possession for a term equal to
the remainder then unexpired of the term hereby granted and
subject to similar covenants and conditions as those contained
in this Lease but disregarding:
(i) the fact that the Tenant or any underlessee has been in
occupation of the whole
-25-
<PAGE> 27
or any part of the demised premises
(ii) any goodwill attached to the demised premises by reason of the
carrying on at the demised premises of the business of the
Tenant or any underlessee
(iii) any effect on rent of the Tenant's initial fitting out
mechanical electrical servicing and other installation works and
of any improvement to the demised premises carried out otherwise
than in pursuance of an obligation to the Landlord or its
predecessors in title by and at the expense of the Tenant or any
permitted sub-tenants or their respective predecessors in title
during the period of its or their occupation of the demised
premises whether before or after the date hereof and all trade
fixtures and fittings fixed to the demised premises either by
the Tenant or its permitted sub-tenants or their respective
predecessors in title during the term PROVIDED that in the case
of such of the foregoing as shall require the approval of the
Landlord such approval shall have been obtained and so long as
the improvement was completed not more than twenty one years
before the relevant review date
(d) if at any review date the Landlord shall be obliged legally or
otherwise to comply with any enactment (which expression shall
include any Act of Parliament now or hereafter in force and any
instrument regulation or order made thereunder or deriving
validity therefrom) dealing with the control of rent and which
shall restrict or modify the Landlord's right to review (as
opposed to receive) the rent in accordance with the terms of
these presents then the Landlord shall on each occasion that any
such enactment is removed relaxed or modified be entitled on
giving not less than three months' notice in writing to
-26-
<PAGE> 28
the Tenant expiring after the date of each such removal
relaxation or modification to introduce an intermediate review
date (hereinafter called "the intermediate review date") which
shall be the date of expiration of such notice and the rent
payable hereunder from an intermediate review date to the next
succeeding date of review or intermediate review date
(whichever shall first occur) shall be determined in like manner
as the rent payable from each review date is hereinbefore
provided
(e) as soon as any reviewed rent has been agreed hereunder the
Landlord and the Tenant shall forthwith thereafter at the
expense of the Landlord and Tenant in equal shares cause a
Memorandum stating the amount of the reviewed rent and the date
from which such reviewed rent is payable to be endorsed on this
Lease and the Counterpart thereof
(f) In no circumstances shall the rent payable hereunto after a
review date be less than the rent payable for the period
immediately preceding the relevant review date in addition to
the Insurance rent
9. NOTHING herein contained or implied shall impose or be deemed to impose
any restriction on the user of any land or buildings not comprised in
this Underlease for building or any other purpose or give the Tenant the
benefit of or the right to enforce or to have enforced or to prevent the
release or modification of any covenant agreement or condition entered
into by any lessee or tenant of the Landlord in respect of property not
comprised in this Underlease or to prevent or restrict in any way the
development of any land not comprised in this Underlease
10. THE provisions of Section 196 of the Law of Property Act 1925 as amended
by the
-27-
<PAGE> 29
Recorded Delivery Service Act 1962 shall apply to any notice under
this Underlease
11. (a) The Guarantor hereby covenants with the Landlord that the Tenant
(as well after as before any disclaimer) will pay the rents and
all other moneys payable hereunder at the times and in manner
aforesaid and will fully observe and perform the covenants
agreements stipulations and conditions herein contained and on
the part of the Tenant to be observed and performed and that in
case of default by the Tenant in such payment or observance and
performance the Guarantor will pay and make good to the Landlord
on written demand all losses damages costs and expenses thereby
arising or incurred by the Landlord PROVIDED ALWAYS and it is
hereby agreed that any neglect or forbearance by or on the part
of the Landlord in endeavouring to obtain any such payment or
enforce such observance and performance or any other indulgence
which may be given to the Tenant by the Landlord shall not
release or exonerate or in any way reduce or affect the
liability of the Guarantor under the provisions hereof
(b) If during the subsistence of these presents the Tenant shall
enter into liquidation and the Liquidator shall disclaim these
presents the Guarantor hereby agrees with the Landlord that (if
so required in writing by or on behalf of the Landlord within
three months of receipt by the Landlord of notice of such
disclaimer) the Guarantor will accept from the Landlord within
28 days of such requirement an Underlease of the demised
premises for the residue then unexpired of the Term reserving
the rents and containing the same reservations and exceptions
covenants agreements stipulations and conditions as apply hereto
and to be
-28-
<PAGE> 30
granted at the cost of the Guarantor
IN WITNESS whereof this Underlease has been duly executed as a Deed by the
Parties the day and year first before written
Signed as a Deed by OCULAR SCIENCES )
LIMITED acting by a director )
and its secretary or two directors: )
Director
Director/Secretary
Signed as a Deed by OSI Corporation )
acting by a director and its )
secretary or two directors )
Director
Director/Secretary
-29-
<PAGE> 1
EXHIBIT 11.01
OCULAR SCIENCES, INC.
STATEMENT REGARDING COMPUTATION OF PRO FORMA AND
SUPPLEMENTARY PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Net income....................................................... $ 10,176,000 $ 1,822,000
------------ ------------
Weighted average shares outstanding.............................. 8,222,702 8,277,756
Weighted average shares of stock options using estimated initial
public offering price under the treasury stock method.......... 1,327,288 1,287,725
Weighted average shares issuable upon conversion of the Series A
Preferred Stock................................................ 118,168 118,168
Additional weighted average shares of stock options using
estimated initial public offering price under the treasury
stock method issued one year prior to initial filing of the
registration statement......................................... 16,433 3,634
----------- -----------
Pro Forma Weighted Average Number of Common and Common Equivalent
Shares Outstanding............................................. 9,684,591 9,687,283
----------- -----------
Pro Forma Net Income Per Share................................... $ 1.05 $ 0.19
=========== ===========
Net Income....................................................... $ 10,176,000 $ 1,822,000
Elimination of interest expense on retirement of $14,487,000
Comerica Bank Debt and $2,895,000 Long Term Subordinated Note
following initial public offering.............................. $ 2,741,000 $ 443,000
----------- -----------
Supplemental Net Income.......................................... $ 12,917,000 $ 2,265,000
----------- -----------
Pro Forma Weighted Average Number of Common and Common Equivalent
Shares Outstanding, from above................................. 9,684,591 9,687,283
Additional number of shares to be issued to retire the above
indebtedness using the deemed initial public offering
share price.................................................... 869,100 869,100
----------- -----------
Supplementary Pro Forma Weighted Average Number of Common
Equivalent Share Outstanding................................... 10,553,691 10,556,383
----------- -----------
Supplementary Pro Forma Net Income Per Share..................... $ 1.22 $ 0.21
=========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.01
LIST OF SUBSIDIARIES
Entity Jurisdiction of Incorporation
O.S.I. Puerto Rico Corporation Delaware
OSI Canada Corporation Province of New Brunswick
Ocular Sciences Limited United Kingdom
(formerly Precision Lens
Laboratories Ltd.)
Ocular Sciences Hungary Ltd. Budapest, Hungary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 AND MARCH 31, 1997 CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED
STATEMENTS OF NET INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 5,541 3,378
<SECURITIES> 0 0
<RECEIVABLES> 17,473 14,541
<ALLOWANCES> 1,451 1,000
<INVENTORY> 12,956 13,986
<CURRENT-ASSETS> 36,265 33,368
<PP&E> 35,993 37,976
<DEPRECIATION> 9,531 10,922
<TOTAL-ASSETS> 63,503 69,738
<CURRENT-LIABILITIES> 21,147 28,269
<BONDS> 0 0
0 0
1 1
<COMMON> 8 8
<OTHER-SE> 23,880 25,681
<TOTAL-LIABILITY-AND-EQUITY> 63,503 69,738
<SALES> 90,509 23,879
<TOTAL-REVENUES> 90,509 23,879
<CGS> 36,553 9,462
<TOTAL-COSTS> 36,521 11,173
<OTHER-EXPENSES> 186 191
<LOSS-PROVISION> 193 237
<INTEREST-EXPENSE> 3,216 487
<INCOME-PRETAX> 14,165 2,603
<INCOME-TAX> 3,989 781
<INCOME-CONTINUING> 10,176 1,822
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,176 1,822
<EPS-PRIMARY> 1.05 .19
<EPS-DILUTED> 0 0
</TABLE>
